Senate Republicans passed the most significant overhaul of the tax code since 1986 on Dec. 20, 2017. The
President signed the bill into law. Central to the new tax law are major changes to how both corporate and
individual taxes are calculated. The law permanently cuts the corporate tax rate
from 35% to 21%, changes the deduction for so-called pass-through
businesses, lowers the rates of individual tax brackets, increases the child
tax credit, establishes a new family tax credit, and nearly doubles the
standard deduction.
According to estimates
by the Congressional Budget Office (CBO) and the staff of the Joint Committee
on Taxation, the law will reduce tax revenues by about $1,649 billion and
decrease spending by about $194 billion between 2018 to 2027, leading to a
$1,455 billion increase in the federal deficit over the next 10 years.
The
tax bill also repeals the individual mandate provision of the Affordable Care
Act, a move that the CBO projects will increase insurance premiums
and raise the number of uninsured Americans to 13 million by 2027. Health
insurance premiums in the individual market are estimated to rise by about 10%
in most years over the course of the decade. Removing the mandate may cause the
individual market to tilt more toward sicker and older consumers, since the
mandate served to nudge younger and healthier Americans to sign up for
coverage.
Many
of the tax changes went into effect at the start of calendar year 2018. Individual
taxpayers will start seeing withholding changes in their paychecks in February,
once the Internal Revenue Service has time to give guidance to payroll
administrators. The IRS announced
it would begin accepting 2017 tax returns on Jan. 29. The IRS set the early opening
date to ensure the security and readiness of key tax processing systems in
advance of the opening and to assess the potential impact of tax legislation on
2017 tax returns. The tax filing season deadline this year is Apr. 17, two days
later than the traditional Apr. 15 date.
Educational
Provisions of the Tax Law
The bill does not
include any of the egregious education deduction provisions that were included
in the House version of the bill. However, some provisions that were maintained
are worth noting. First, the charitable giving tax deduction remains, but with
the increase in the standard deduction there is some concern that this may have
a chilling effect on individual donations because fewer taxpayers will itemize
deductions.
Another change under the law could
affect state educational funding and highly endowed colleges, potentially raising
costs at some institutions. The law will levy a 1.4% excise tax on the
investment income of private colleges and universities whose endowment assets
are valued at $500,000 or more and have 500 full-time equivalent students.
ADEA worked closely with its
partner organizations to push for continued favorable tax treatment of higher
education. After much wrangling, congressional leaders removed earlier
provisions in the House bill that would have repealed a range of benefits,
including tax-exempt tuition waivers for graduate students that help families
finance higher education. ADEA will continue to update members on the tax law’s
provisions and how they impact academic dentistry and research.