What’s Up With the Tax Act?
When my sons were little, they didn’t always appreciate the decisions I made. If you’re a parent, I’m sure you know exactly what I’m talking about.
As they stormed at me, I would say, “You know, boys, someday you’re going to be the dad, and you can do everything right when that day comes. But today we’re doing it my way.”
They didn’t know the context for the decisions I was making, so they pushed and resisted ideas, direction, and the parental leadership established in our home.
This behavior is pretty normal for a juvenile. However, it is not normal for adults, and unfortunately I see it happening around Trump’s tax act.
On the morning of April 15—tax day in the United States—I listened to two guys on the radio bantering about the new tax law and its failure to deliver.
The Tax Cut and Jobs Act of 2017 passed by President Trump claimed it would generally lower taxes. These two guys talked about how the deduction was only for the rich.
When we’re discussing taxes or any other topic, all of us need to be careful to work off of facts and truth, not supposition and presumption. We have to sit back and ask, “What is truth in this situation?”
With that in mind, I would like to address our current tax situation. My point is not to defend it—but simply to communicate reality.
Standard vs. Itemized Deductions
One of the features in the U.S. tax system is the standard deduction. It’s a number everyone in the United States can use to reduce their taxable income. The number is higher if you’re married and lower if you’re single.
You are not required to use the standard deduction; you can choose to go the alternative route and itemize your deductions instead. These are things like medical expenses (if you paid over a certain amount), the interest paid on your home mortgage, your donations to nonprofits, etc.
It doesn’t matter which one of these deductions you choose: the standard or the itemized. You can use whichever number is better for you.
Historically, if I compared my itemized deduction to the standard deduction, I would often find the itemized was better. But when Trump signed the new law, he basically doubled the standard deduction, so now every person in the United States can deduct roughly twice as much as they used to.
When people say, “The tax act did not work for me,” it means they realized their itemized deduction didn’t help them. It’s a psychological thing.
In order to really understand what’s going on with the tax act, we shouldn’t ask, “Did I get to deduct my contributions or the interest I paid on my mortgage?” We need to focus on a different question: “Did my total tax bill go down?” Because that is what the tax act said it would generally do.
Actual Tax Paid
We can’t judge the effectiveness of a tax program based on a refund. If we think we can, that’s a blind spot and we’re not asking the right question.
Some refunds were smaller in the 2018 filing year because withholdings lowered, and a greater percentage of wages went directly into workers’ pockets. Sometimes that’s a benefit, but it can also result in a smaller refund.
The size of our refund does not indicate the total tax we paid. To see if we actually paid less tax, we have to compare our taxes year to year.
Tax Policy Center Numbers
Here are the official results of the tax act as of April 15, 2019. These numbers are based on information provided by the Tax Policy Center.
If you take the massive number of taxes filed in the United States—about 150 million of them—and boil that number down to a more manageable number of 100, here’s the basic picture of what happened with taxes in the 2018 filing year:
About 65 saved more than $1000 on their taxes
About 9 paid more, probably because they lost some advantage in their itemized
About 26 had no change
So as you can see, claiming the tax act didn’t deliver or that it’s only for the rich doesn’t match the facts. Those claims are not what the American people are actually experiencing.
In this season, many different sources are sharing opinions that aren’t based on fact. This is a dangerous time to listen to anything other than the truth.
Let’s learn how the tax system operates. We can find ways to deduct expenses and lower our taxes where we can, because the law is not against tax reduction. It is against tax evasion, but those are two very different worlds.
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