Question

In 2017, President Trump and Republicans in Congress cut the corporate tax rate from 35 percent to 21 percent via the Tax Cuts and Jobs Act of 2017 (TCJA).” What are the incentives behind this tax cut, explain?

Answer 1

President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) on Dec. 22, 2017.1 It cut individual income tax rates, doubled the standard deduction, and eliminated personal exemptions from the tax code. The top individual tax rate dropped from 39.6% to 37%, and numerous itemized deductions were eliminated or affected as well.2

The Act also cut the corporate tax rate from 35% to 21% beginning in 2018. The corporate cuts are permanent, while the individual changes expire at the end of 2025 unless Congress acts to renew some or all of the provisions of the TCJA.

The TCJA is complex and its various terms affect each family differently depending on their personal situations:

High-income earners: The Tax Foundation has indicated that those who earn more than 95% of the population will receive a 2.2% increase in after-tax income. Those in the 20% to 80% range would receive a 1.7% increase.

Those with valuable estates: A larger exemption for the estate tax will benefit you if you leave an estate that's worth a lot of money. The TCJA doubled the estate tax exemption from $5.49 million in 2017 to $11.18 million in 2018.4

Taxpayers who claim the standard deduction: You'll win on two levels if your itemized deductions are less than the standard deduction, so you claim the standard deduction. First, it will reduce your taxable income more. Second, you can skip the complicated process of itemizing. That not only saves you time, but it will also save you money if you no longer have to pay a tax advisor.