Five changes in the 2017 tax law that reached the kitchen table

Say the words "the 2017 tax law" to ten people and you will get ten shouting matches and zero arithmetic. One side calls it a giveaway to billionaires. The other calls it the greatest tax cut in history, a phrase I would advise you not to use unless you can back it up. Both sides are talking about a bill that ran for hundreds of pages and touched everything from the family return to the multinational's ledger. Slogans are what people use when they have not read the thing.

So let me do something unfashionable. Let me take the Tax Cuts and Jobs Act, signed in December 2017, and judge it the way a family judges anything it buys: one item at a time. I have picked five changes that reached an ordinary kitchen table, and for each one I will say what changed, show a worked example, and give the strongest thing the critics say. Then I will tell you how to think about the whole.

The law was signed on December 22, 2017. It cut and reshaped the individual rates, which became 10, 12, 22, 24, 32, 35 and 37 percent, with the top rate falling from 39.6 to 37 percent. But the rate table is not where most families felt it.

Change one: the standard deduction nearly doubled

For tax year 2017, the last year under the old rules, the standard deduction was $6,350 for a single filer and $12,700 for a married couple filing jointly. For tax year 2018, the law raised those to $12,000 and $24,000. Do the division: $12,000 divided by $6,350 is about 1.89, and $24,000 divided by $12,700 is also about 1.89. Not quite double, but near it.

Why does that matter? The standard deduction is the amount of income you do not pay tax on if you don't itemize, and most households don't. Doubling it removed a block of income from the tax base for almost every filer. It also made itemizing worthwhile for far fewer people, which simplified returns: fewer families keep receipts for charity and medical bills and fill out Schedule A. If you want to see how a deduction differs from a credit, four families, one tax change, and how a deduction differs from a credit walks through it with four households.

Now the part of this change that the cheerleaders skip, and I want to be fair. The same law suspended the personal exemption, which had been $4,050 per person in 2017. A family of four had been able to claim four of them. The old arithmetic for that family: $12,700 standard deduction plus 4 times $4,050, which is $16,200, for a total of $28,900. The new arithmetic: $24,000. So the family's total deduction actually went down by $4,900 ($28,900 minus $24,000). For larger families, the suspended exemption ate part of the benefit of the bigger standard deduction. That is why the law paired the change with a more generous child credit, which is change two.

The critics' strongest point on this change: the doubling is a fair benefit but it was temporary, set to end after 2025, while the corporate cut was permanent. I will come to that.

Change two: the child tax credit doubled

Before the law, the child tax credit was $1,000 per qualifying child under 17. The law raised it to $2,000 per child, with up to $1,400 of it refundable in the first year, and created a new $500 credit for other dependents such as an older child or a relative you support. It also raised the income at which the credit starts to phase out, from $75,000 for a single filer and $110,000 for a married couple to $200,000 and $400,000.

A credit is worth more than a deduction. A deduction lowers the income you are taxed on; a credit lowers the tax itself, dollar for dollar. Run the numbers for a hypothetical couple with two children under 17 and a tax bill large enough to use it all. Before: 2 times $1,000 equals $2,000 in credits. After: 2 times $2,000 equals $4,000. That is $2,000 more in the family's pocket every year, which is more than the savings from the rate cuts for many middle-income households.

Set that beside the lost exemptions for the same family of four. The four exemptions had been worth $16,200 of deductions in 2017. For a couple in the old 15 percent bracket, that deduction saved 0.15 times $16,200, which is $2,430. The two extra credit dollars, $2,000 more for two children, nearly cover it by themselves, and the bigger standard deduction ($24,000 against $12,700, a gain of $11,300) and the lower rates come on top. For a family in the old 25 percent bracket the lost exemptions were worth 0.25 times $16,200, or $4,050, and the cushion is thinner. That is my own illustration, not a promise: your numbers depend on your income, your bracket and your number of children, which is why you should run your own return before you believe anybody's slogan, including mine.

For the full history of this credit, read the child tax credit from $400 to $2,000, told bill by bill.

The critics' strongest point: the part of the credit available to the lowest earners was limited by a refundability cap, so the poorest working families received a smaller share of the benefit. That is a fair statement of how a refundable cap works, and a conservative who cares about work and family should note that Congress has argued about the right design ever since.

Change three: the corporate rate fell from 35 to 21 percent

This is the one that sounds remote from your kitchen table, so let me bring it in. A tax on a corporation is not paid by a building. It is paid, in the end, by people: owners, workers or customers. Economists argue about the split. A 35 percent corporate rate was among the highest in the developed world when the law passed; most of our trading partners had cut theirs. The law brought the federal rate to 21 percent, and made that change permanent. It also lets businesses write off the cost of equipment faster, which pulls investment forward.

The argument for the cut is straightforward. 1. Capital goes where it is treated best. 2. A high corporate rate pushes investment and profits abroad. 3. Investment in plants and equipment makes workers more productive. 4. More productive workers earn more over time. Those are four premises, and the first two are well supported. The last two are claims about the long run on which economists disagree about the size, not the direction.

The strongest critic's point is a good one: the corporate cut was permanent and the individual cuts were set to expire, which looked lopsided. Why was it written that way? Largely because of the budget rule I explain in The 2001 and 2003 Bush tax cuts and why they came with an expiration date: the bill moved by reconciliation, and a permanent cut of everything would have run into the Byrd rule. The result was a design where the business side was fixed and the family side carried the sunset. A fair critic can call that unbalanced. A fair defender should concede that the sunset was a constraint of procedure rather than a statement of values.

Change four: the 20 percent pass-through deduction, section 199A

Most American businesses are not corporations that pay the corporate rate. They are sole proprietors, partnerships and S corporations, called pass-through entities, where the profit passes through to the owner's personal return and is taxed at personal rates. When the corporate rate dropped to 21 percent, the question was what to do for the electrician, the farmer and the dry cleaner who file on a Schedule C or a partnership return.

The answer was a new deduction, section 199A of the tax code: up to 20 percent of qualified business income. For every $10,000 of qualified business income, the deduction is 0.20 times $10,000, which is $2,000, and for an owner in the 22 percent bracket that saves 0.22 times $2,000, which is $440 in tax. At the top bracket, 37 percent applied to 80 percent of the income works out to an effective 29.6 percent rate (0.37 times 0.80).

It is a complicated deduction. For taxpayers above certain income thresholds, it is limited by how much W-2 wages the business pays or how much property it holds, and for many service businesses such as law, accounting and consulting practices it phases out entirely at higher incomes. There is also an overall cap tied to your taxable income. I am not going to give you a threshold, because the thresholds are adjusted every year; look at the current-year instructions for the form on IRS.gov. It does not reduce self-employment tax, and it was written to expire after 2025 like the individual provisions.

The critics' strongest point: it is a deduction for one form of business income that employees cannot get, and its limits invite lawyers and accountants to rearrange income to qualify. That's a fair criticism of complexity. The conservative reply is that the alternative was leaving the Main Street shop with a tax rate far above what the corporation down the highway paid.

Change five: the $10,000 cap on state and local tax deductions

Before the law, if you itemized you could deduct the state and local income taxes, sales taxes and property taxes you paid, without limit. The law capped that deduction at $10,000 per return ($5,000 for a married person filing separately).

Here is a hypothetical. A homeowner in a high-tax state pays $9,000 in property tax and $7,000 in state income tax, for $16,000 total. Under the old law, if she itemized, she deducted $16,000. Under the cap she deducts $10,000. The lost deduction is $6,000, and at a 24 percent bracket that costs her 0.24 times $6,000, which is $1,440 in extra federal tax, if she still itemizes at all. With a standard deduction of $24,000 for a couple, many families in that spot would not itemize anyway.

This was the most politically contested change, because it fell hardest on high-tax states, which are mostly states with Democratic governments. It also had a principled argument behind it: the old deduction meant that residents of low-tax states helped subsidize the public spending of high-tax states, and it softened the voters' resistance to local tax increases. A deduction that lets a state tax its citizens at the federal government's expense is a gift to big-spending governments. Critics replied that it was double taxation, taxing taxes. Both arguments are about values and federalism, not about a fact in dispute. Congress changed the cap again in 2025, so check the current figure on IRS.gov before you plan around it.

The sunset, and the 2025 follow-up

Most of the individual changes, including the doubled standard deduction, the lower rates and the 199A deduction, were written to end after December 31, 2025. The corporate rate was not. In 2025 Congress passed another reconciliation law that made the individual rates permanent and adjusted some of the other provisions, which means you must check the current rules on IRS.gov rather than rely on any older description, including this one. For the context of why laws like these have end dates, read the earlier post on the Bush cuts, and for the broader family of Republican tax bills, Republican tax cuts side by side, from Harding all the way to Trump.

How to judge the whole

Now back to the shouting match. Here is the argument in three steps.

1. Ask who got each change. The doubled standard deduction and the child credit reached families at every income level, and the pass-through deduction reached small businesses. The corporate cut reached shareholders and, over time, workers. The SALT cap was a tax increase for some households. A law that has winners and losers cannot be summed by a slogan.
2. Ask what it cost and when it ends. The law reduced revenue, and critics who say it added to deficits are right about the direction. The remedy for that is spending restraint, an argument I make in A Balanced Budget Is a Moral Argument Before It Is an Accounting One.
3. Ask what you would have done instead. A conservative who dislikes a provision should name the replacement. "Nothing" meant keeping a 35 percent corporate rate and a code in which a married couple with two children got a smaller standard deduction.

That is the debater's test: define the terms, state the premises, and be honest about the value judgments. The fact is that the family deduction and credit grew. The value question is whether that is worth the deficit. I say yes, on balance, with the proviso that Congress should pay for what it spends. A voter who thinks the answer is no is entitled to the opposite conclusion, but he owes the family of four an answer to the question of whose standard deduction he would halve, and whose credit he would cut in half again.

There is one more habit worth adopting. When a politician tells you what the law "did," ask for the year and the filing status. The 2017 return and the 2018 return are different documents, and a married couple with no children and a single mother with three face different arithmetic. The single parent, for instance, may file as head of household, which has its own standard deduction and its own brackets, and the child credit matters far more to her than the corporate rate. A debate that never mentions who is filing is a debate about nobody.

The bottom line

• Your own return is the only honest scorecard. Take your 2017 return, put the 2018 rules next to it, and compare the line for taxable income and the line for credits. Do it before you argue about it at the dinner table.
• The standard deduction nearly doubled, but the personal exemption was suspended, so a big family should add the exemptions back to see the real change.
• The child credit doubled to $2,000 per child, which for many families outweighed the lost exemptions. Check the current amount and the phase-out thresholds on IRS.gov.
• If you own a pass-through business, ask your tax preparer about section 199A every year, because the limits are technical and the money is real.
• If someone offers you a slogan about the 2017 law, ask which of the five changes they mean. Then show them the arithmetic.