Christmas is coming, and Americans could soon have reason to be merry.
That’s because the Republican-controlled Congress appears poised to pass the most sweeping overhaul of the U.S. tax code in decades, and, among other things, it would see corporate and individual income taxes reformed, the standard deduction increased and child tax credits raised substantially. Assuming this push for comprehensive tax reform is successful, as many predict it will be, then Americans, and especially those with middle incomes, stand to benefit greatly.
More jobs and bigger paychecks are the two most prominent gains to be expected from the passage of the Tax Cuts and Jobs Act. To what degree is still unclear, since the bill has not yet been finalized — but based on growing evidence, it’s safe to say that gains will be noticeable, both in the U.S. and Texas.
On the job front, one preliminary study suggests that easing the tax burden on capital and labor will be a real boon for employment growth. Figures from Speaker Paul Ryan’s office estimate that the House version of the TCJA, which already passed 227-205, will spur the creation of almost 1 million new full-time jobs nationally. Of that total, the number of new jobs created in Texas could grow to more than 81,000, promising more opportunity for those just entering the workforce, as well as those looking to move up.
An analysis by the Tax Foundation suggests that the Senate’s version of the TCJA will, when fully implemented, help household incomes rise substantially. According to the group, the after-tax income for a middle-income family will rise by $2,598 in the U.S. and grow by $2,558 in Texas. That’s welcome relief for struggling families, to be sure.
Closely related and also worth mentioning is the fact that families will see the value of their child tax credits increase under both the House and Senate versions of the TCJA. Under the House’s version, the tax credit would grow from $1,000 to $1,600 with a phaseout for joint filers beginning at $230,000. Under the Senate’s version, the credit would increase from $1,000 to $1,650 with the phase-out for joint filers starting at $1 million.
In concert, Congress’ comprehensive tax reform package promises to be a marked improvement over the status quo, especially for middle-income Americans looking for new job prospects and those watching over their bottom lines. This isn’t to say that the TCJA is perfect. It isn’t.
The House version creates a new tax bracket of 45.6 percent for top earners and does not fully repeal the state and local tax deductions, which generally benefit high-income Americans in high-tax states. The Senate version is better in some ways, but it still doesn’t repeal the estate tax or the death tax. And neither version meaningfully reduces federal spending.
Still, the TCJA is a step in the right direction as it simplifies the tax code, reduces the overall tax burden, sharpens the nation’s competitive edge on corporate taxes and makes it a little easier financially on families to raise children.
The bill still has a way to go before it lands on the president’s desk — if it does at all, which means that there’s still a chance for the Grinch to ruin Christmas. Even if that happens, lawmakers have a solid framework on which to improve.
The TCJA has many of the core elements needed to transform our antiquated and complicated tax code. If Congress can get it across the finish line, then policymakers can help launch a new era of private-sector growth that will fuel the U.S. and Texas economies for decades. That’s plenty of reason to be merry.
Quintero leads the Think Local Liberty project.