Tax Cuts and Jobs Act of 2017

Tax Cuts and Jobs Act of 2017 was a major piece of federal legislation passed by the 115th United States Congress and signed into law by President Donald Trump in December 2017. It represented the most significant overhaul of the Internal Revenue Code of 1986 in over three decades, primarily reducing tax rates for individuals and corporations. The law's proponents, including Speaker Paul Ryan and Senate Majority Leader Mitch McConnell, argued it would stimulate economic growth, while critics, such as Senate Minority Leader Chuck Schumer, contended it disproportionately benefited wealthy taxpayers and corporations.

Background and legislative history

The push for comprehensive tax reform was a central legislative priority for the Republican Party following the 2016 election, which gave them control of the White House, the Senate, and the House of Representatives. The effort was led by Kevin Brady, Chairman of the House Ways and Means Committee, and Orrin Hatch, Chairman of the Senate Finance Committee. Drafting utilized the budget reconciliation process to avoid a filibuster in the Senate, following the passage of the Congressional Budget Act. The final bill was passed largely along party lines, with no support from Democratic members of Congress, and was signed at a ceremony attended by Vice President Mike Pence and members of the Cabinet of the United States.

Major provisions

For corporations, the law permanently reduced the top corporate tax rate from 35% to 21% and shifted the U.S. toward a territorial tax system for foreign profits. Key changes for individuals included lowering most income tax bracket rates, doubling the standard deduction, and limiting the state and local tax deduction to $10,000. It also increased the Child Tax Credit, repealed the Affordable Care Act's individual mandate penalty, and doubled the estate tax exemption. Many individual provisions, unlike the corporate changes, are scheduled to expire after 2025 under the law's sunset provisions.

Economic effects and analysis

Analyses from the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) projected the law would increase budget deficits by over $1 trillion over a decade, even after accounting for projected economic growth. The Federal Reserve noted initial boosts to business investment and GDP growth, while organizations like the Tax Policy Center found the benefits skewed toward higher-income households. Studies by the International Monetary Fund and academic institutions like the University of Chicago Booth School of Business showed mixed evidence on its impact on wages, investment, and overall economic dynamism.

Legislative and political reception

The act passed without any Democratic votes, drawing strong opposition from leaders like Nancy Pelosi and Bernie Sanders, who criticized it as a giveaway to the wealthy. Support from groups like the U.S. Chamber of Commerce and the National Federation of Independent Business was countered by criticism from the Center on Budget and Policy Priorities and the Institute on Taxation and Economic Policy. The law became a focal point in the 2018 midterm elections, with Republicans campaigning on its benefits and Democrats highlighting its deficit impact and perceived inequities.

Implementation and compliance

The Internal Revenue Service, under the direction of Commissioner Charles Rettig and the Treasury Department led by Secretary Steven Mnuchin, issued extensive guidance and new forms, such as the revised Form 1040. The complexity of provisions like the Qualified Business Income Deduction (Section 199A) and changes to international rules like the Global Intangible Low-Taxed Income (GILTI) created significant compliance challenges for taxpayers and firms like Deloitte and PricewaterhouseCoopers. State governments, including high-tax states like New York and California, explored workarounds to the SALT cap, leading to scrutiny from the Treasury Department.

Category:2017 in American law Category:United States federal taxation legislation Category:115th United States Congress