2017 tax reform

Definition

The 2017 tax reform, formally known as the Tax Cuts and Jobs Act, was a significant overhaul of the U.S. tax code aimed at reducing tax rates for individuals and corporations. It introduced changes such as lowering the corporate tax rate, increasing the standard deduction, and eliminating personal exemptions, impacting various aspects of domestic economic policy and immigration funding.

5 Must Know Facts For Your Next Test

1. The 2017 tax reform was signed into law on December 22, 2017, and was the first major revision of the U.S. tax code in over three decades.
2. The reform aimed to stimulate economic growth by lowering taxes for businesses, with supporters arguing it would lead to job creation and higher wages.
3. The act repealed the individual mandate penalty from the Affordable Care Act, which required individuals to have health insurance or face a fine.
4. Many middle-class families benefited from increased child tax credits, although some also faced higher taxes due to limits on state and local tax deductions.
5. The long-term impact of the 2017 tax reform has been debated, with concerns raised about increasing the federal deficit and income inequality.

Review Questions

• How did the 2017 tax reform aim to stimulate economic growth through its changes to corporate tax rates?
  • The 2017 tax reform aimed to stimulate economic growth primarily by lowering the corporate tax rate from 35% to 21%. This significant reduction was intended to encourage corporations to invest more in their operations, leading to job creation and higher wages for employees. By making U.S. businesses more competitive globally, supporters believed that this would ultimately benefit the overall economy.
• What were some consequences of repealing the individual mandate penalty from the Affordable Care Act as part of the 2017 tax reform?
  • The repeal of the individual mandate penalty had significant consequences for health insurance coverage in the U.S. Without the requirement for individuals to have health insurance, many chose to go without coverage, leading to an increase in uninsured rates. This change undermined efforts to stabilize insurance markets and contributed to rising premiums for those who remained insured, creating a more fragmented healthcare system.
• Evaluate how the increased standard deduction and changes in state and local tax deductions impacted different socioeconomic groups following the 2017 tax reform.
  • The increase in the standard deduction under the 2017 tax reform benefitted many middle-class families by allowing them to reduce their taxable income significantly. However, this was coupled with limitations on state and local tax deductions, which disproportionately affected residents in high-tax states. As a result, while some lower- and middle-income households saw a decrease in their overall tax burden, others found themselves paying more, exacerbating disparities in wealth and highlighting ongoing issues related to income inequality.

Related terms

Corporate Tax Rate: The percentage at which a corporation's profits are taxed, significantly lowered by the 2017 tax reform from 35% to 21%.

Standard Deduction: A fixed dollar amount that taxpayers can deduct from their income before income tax is applied, which was nearly doubled by the 2017 tax reform.

Deficit: The difference between the government's expenditures and its revenues, which widened as a result of the 2017 tax reform due to reduced tax revenue.