The Three Numbers To Know About The TCJA In 2018

As tax filing season came to an end, lots of people wanted to know how much the Tax Cuts and Jobs Act (TCJA) affected 2018 federal income tax bills. To see how it changed taxes for specific individuals, you can use the Tax Policy Center’s updated calculator. But how did it affect various income groups?

Last year, TPC projected 2018 tax cuts and tax increases for various income groups. But because this analysis showed those effects in several different ways, some readers got confused. Too much information, perhaps. So here’s the bottom line:

About 65 percent of households paid less in individual income taxes in 2018 as a result of the TCJA. About 6 percent paid more. The rest paid about the same. And, in general, the more money you made, the bigger your tax cut on average--both in dollars and as a share of your after-tax income. 

On average, all households paid roughly $1,300 less in individual income taxes in 2018 than they would have under the old law. The lowest income households (those making less than about $25,000) got an average tax cut of about $40. Middle-income households (who made between about $48,000 and $86,000) paid about $800 less. Those in the top 1 percent, who made $733,000 or more, got an average tax cut of about $33,000. Those are the figures in the column labeled Average Federal Tax Change in Table 1 of that paper.

The TPC analysis added information that, while helpful to analysts, may also have been confusing to normal people. The second section of Table 1 showed the distributional effects of many other provisions of the TCJA. It includes not only the individual income tax changes but also the corporate income tax cuts, reduced estate taxes, and some minor changes in federal excise taxes. For example, TPC distributed the benefits of the corporate rate to both shareholders and workers.  

If you include all those changes, the average household paid about $1,600 less in 2018 under the TCJA than it would have under prior law. Middle-income households paid an average of about $900 less, and the top one percent got an average tax cut of $51,000.

Finally, TPC looked at the average tax change for those who got a tax cut, and the average change for those who got a tax increase. The analysis did so for both the individual income tax alone and for the broader provisions of the TCJA.

To understand those findings, let’s focus on just the individual income tax: The 65 percent of households who paid less in individual income taxes got an average tax cut of about $2,200. The 6 percent whose income taxes went up paid an average of $2,800 more. The 82 percent of middle-income households who got an individual income tax cut paid an average of $1,000 less, and the 9 percent with a tax hike paid an average of   $850 more.

Those are a lot of numbers, and they can get confusing. But when you are thinking about the individual income tax filing season that ended this week, you mostly can quit after just three numbers: 65 percent of households got an individual income tax cut in 2018, about 6 percent got a tax increase, and the average middle-income household paid about $800 less than it would have had the law never changed.      

If, by contrast, you want to know about the overall effects of the TCJA, including cuts to the corporate and estate taxes, then you want to focus on the numbers shown as “all provisions.”

See, it isn’t that hard.