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Introduction

The Tax Cuts and Jobs Act of 2017 (TCJA) is a congressional revenue act of the United States signed into law by President Donald Trump which amended the Internal Revenue Code of 1986. Major elements of the changes include reducing tax rates for businesses and individuals, increasing the standard deduction and family tax credits, eliminating personal exemptions and making it less beneficial to itemize deductions, limiting deductions for state and local income taxes and property taxes, further limiting the mortgage interest deduction, reducing the alternative minimum tax for individuals and eliminating it for corporations, reducing the number of estates impacted by the estate tax, and cancelling the penalty enforcing individual mandate of the Affordable Care Act (ACA)

The Act is based on tax reform advocated by congressional Republicans and the Trump administration. The nonpartisan Congressional Budget Office (CBO) reported that under the Act individuals and pass-through entities like partnerships and S corporations would receive about $1.125 trillion in net benefits (i.e. net tax cuts offset by reduced healthcare subsidies) over 10 years, while corporations would receive around $320 billion in benefits. The CBO estimated that implementing the Act would add an estimated $2.289 trillion to the national debt over ten years,  or about $1.891 trillion after taking into account macroeconomic feedback effects, in addition to the $9.8 trillion increase forecast under the current policy baseline and existing $20 trillion national debt

The Compliance Cost of IRS Regulations

The growing complexity of the U.S. tax code had led to large compliance costs for households and businesses. The Tax Foundation used data from the Office of Information and Regulatory Affairs and the Bureau of Labor Statistics to estimate total cost of tax compliance on the U.S. economy in 2016.

Complying with the tax code creates real costs for American households and businesses, starting with just the time it takes. It took individuals 2.6 billion hours to comply with IRS tax filing requirements in 2016.

This time imposes a real cost on the economy. Individuals devote resources to complying with the tax code instead of doing other productive activities. Put in dollar terms, complying with the individual income tax costs $99 billion annually. Tackling the cost of tax complexity was a significant motivation for the TCJA.

 

The Tax Cuts and Jobs Act Simplified the Individual Income Tax

The TCJA simplified the tax code by making it more advantageous for many filers to take the standard deduction, instead of itemized deductions. The TCJA expanded the standard deduction from $6,500 to $12,000 for single filers and $13,000 to $24,000 for joint filers in 2018. This near doubling of the standard deduction limited the value of itemized deductions, making it more attractive to use the standard deduction.

Additionally, under the TCJA, the three provisions that reduce household income taxes based on household size were consolidated into two: the personal exemption was eliminated, replaced by the aforementioned expanded standard deduction and an expanded child tax credit.

These changes, along with new limitations on certain itemized deductions, simplified the tax code for many Americans.

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