Trump's Tax Plan and How It Affects You

What You Need To Know About the Tax Cuts and Jobs Act

Sponsored by What's this?

The Balance / Julie Bang

President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) on Dec. 22, 2017. The TCJA cut individual income tax rates, doubled the standard deduction, and eliminated personal exemptions from the tax code, among other provisions.

The top individual tax rate dropped from 39.6% to 37% under the terms of the law, and numerous itemized deductions were eliminated or affected as well. The TCJA also cut the corporate tax rate from 35% to 21% effective 2018. 

Key Takeaways

  • Individual tax rates were lowered, the standard deduction was raised, and personal exemptions were eliminated by the TCJA.
  • The legislation eliminated some itemized tax deductions.
  • The maximum corporate tax rate dropped from 35% to 21%.
  • Passthrough companies received a 20% deduction on qualified income.
  • The act was estimated to cost $1 to $2 trillion.

How the TCJA Affects You

The TCJA is complex. Its various terms affect each family differently depending on their personal situations.

High-Income Earners

When the TCJA was proposed, the independent tax policy nonprofit Tax Foundation found that those who earn more than 95% of the rest of the population would enjoy a 2.2% increase in after-tax income. Those in the 20% to 80% range would see a 1.7% increase.


The Tax Foundation indicated that those in the bottom 20% would only receive a 0.8% increase.

Those With Valuable Estates

A larger exemption for the estate tax benefits you if you leave an estate that's worth a great deal of money. The TCJA doubled the estate tax exemption from $5.49 million in 2017 to $11.18 million in 2018. The exemption was $12.06 million in 2022 and it increased to $12.92 in 2023 because it's indexed to keep pace with inflation.

Taxpayers Who Claim the Standard Deduction

You win on two levels if you claim the increased standard deduction because it has the potential to be greater than your itemized deductions. Claiming the standard deduction tends to reduce your taxable income more than it did before passage of the TCJA so you can skip the complicated process of itemizing your deductions and reduce your taxable income just as much if not more.

Large Families

You might be hurt by the elimination of personal exemptions under the terms of the TCJA if you have a large family and several dependents. The increased tax credits for children and adult dependents and the doubled standard deductions aren't generally enough to offset this loss for families with multiple children.

The Self-Employed

You might benefit from the 20% qualified business income deduction if you're an independent contractor, own your own business, or are self-employed.

Individual Income Tax Rates

The TCJA lowered tax rates, but it kept seven income tax brackets. The brackets correspond with more favorable spans of income under the TCJA than under previous law. Each bracket accommodates more income.

The highest tax bracket started at taxable income greater than $539,900 for single filers and $647,850 for married couples filing jointly in tax year 2022. These thresholds increased in 2023 to $578,125 for single taxpayers and to $693,750 for married taxpayers filing joint returns. Taxpayers are subject to a 37% rate on incomes over these thresholds after exemptions and deductions.

2017 Income Tax Rate (Pre-TCJA) 2023 Income Tax Rate 2023 Income for Those Filing As Single 2023 Income for Those Filing Jointly 
10% 10% $0 to $11,000 $0 to $22,000
15% 12% $11,001 to $44,725 $22,001 to $89,450
25% 22% $44,726 to $95,375 $89,451 to $190,750
28% 24% $95,376 to $182,100 $190,751 to $364,200
33% 32% $182,101 to $231,250 $364,201 to $462,500
33%/35% 35% $231,251 to $578,125 $462,501 to $693,750
39.6% 37% More than $578,125 More than $693,750

These income levels are also adjusted each year to keep pace with inflation.

The Standard Deduction vs. Itemized Deductions

A single filer's standard deduction increased from $6,350 in 2017 to $13,850 in 2023. The deduction for married joint filers has increased from $12,700 in 2017 to $27,700 in 2023.

The Tax Foundation estimated in September 2019 that only about 13.7% of taxpayers would itemize on their returns in 2019 due to this change. That's less than half of the 31.1% who would have itemized before the TCJA.

Personal Exemptions

Taxpayers could subtract $4,050 from their taxable incomes for themselves and for each of their dependents before the TCJA. That worked out to $20,250 for a married couple with three children. Combined with the standard deduction for married taxpayers filing joint returns ($12,700 at that time), the total deduction worked out to $32,950.

Now fast forward to TCJA terms. There are no more personal exemptions, but the legislation does provide for a partially refundable tax credit of up to $2,000 per child, so that couple can claim $33,700 (the standard deduction plus as much as $6,000 for their children) in 2023. That's $750 less in income that they'll pay taxes on, assuming in both scenarios that they're not claiming any other tax deductions or credits.

Fewer Itemized Deductions

The TCJA eliminated most miscellaneous itemized deductions. This includes tax preparation fees, job expenses, and investment fees: 

  • The deductions for tax preparation fees and most unreimbursed employee expenses are gone under the TCJA.
  • The TCJA limited the deduction on mortgage interest to the first $750,000 of qualifying loans. Borrowers who took out their loans before Dec. 16, 2017, aren't affected by this change.
  • Interest on home equity loans or lines of credit can no longer be deducted unless the proceeds are used to buy, build, or substantially improve the home.
  • The state and local tax (SALT) deduction remains in place, but it's capped at $10,000. Taxpayers can deduct property taxes, and either state income or sales taxes, but not both.
  • The deduction threshold for most charitable contributions was improved. You can generally claim a deduction for donations up to 60% of your adjusted gross income (AGI) rather than 50%, the limit prior to passage of the TCJA.
  • Deductions for casualty losses are mostly limited under the TCJA to those that occur in federally declared disaster areas.
  • The threshold for the medical expense deduction dropped from 10% to 7.5% of a taxpayer's AGI. This change was set to expire at the end of 2019, but the Further Consolidated Appropriations Act of 2020 resurrected it.

Another important change is that the TCJA did away with the Pease limitation on itemized deductions. This tax provision previously required that taxpayers had to reduce their itemized deductions by 3% for each dollar of taxable income over certain limits, up to a total of 80%. This is no longer the case, thanks to the TCJA.

Above-the-Line Adjustments to Income

The above-the-line deduction for moving expenses has been eliminated for everyone other than active-duty members of the military.

Those paying alimony can no longer deduct it as an adjustment to income. This change is effective for divorces granted or divorce agreements entered into on or after Jan. 1, 2019. 

The TCJA keeps the deduction for retirement savings. It also allows those age who are age 70½ or older to directly transfer up to $100,000 a year to qualified charities from their individual retirement accounts.

Changes to Tax Credits

The TCJA increased the child tax credit from $1,000 up to $2,000. Even parents who don't earn enough to pay taxes can claim a refund of the credit up to $1,400.

The TCJA also introduced a $500 credit for other dependents, which helps families whose dependent children no longer meet the strict criteria of child dependents because they've aged out, as well as families caring for elderly parents.


These tax credits are fully available to taxpayers with modified AGIs of up to $200,000 for single filers and $400,000 for married taxpayers who file joint returns. They were phased out and eliminated at $75,000 and $110,000 respectively before the TCJA.

The Obamacare Tax

The TCJA repealed the Obamacare tax penalty that was charged to those without health insurance, effective 2019.

The Alternative Minimum Tax

The TCJA keeps the alternative minimum tax (AMT). The 2022 exemption was $75,900 for single filers and $118,100 for joint filers. The exemptions began to phase out at $539,900 for singles and $1,079,800 for married joint filers. These thresholds apply to the tax return you'll file in 2023. They increase for the 2023 tax year to $81,300 to $578,150 for single filers, and to $126,500 to $1,156,300 for married taxpayers filing joint returns.

Business Tax Rates

The tax plan lowers the maximum corporate tax rate from 35% to 21%, the lowest it's been since 1939.

Business Deductions

Pass-through businesses get a 20% standard deduction on qualified income. Pass-through businesses include:

  • Sole proprietorships
  • Partnerships
  • Limited liability companies
  • S corporations
  • Certain trusts and funds

The deductions phase out for service professionals when their income reaches $157,500 for singles and $315,000 for joint filers.

The TCJA limits certain businesses' ability to deduct interest expenses to 30% of their adjusted taxable income. Income was based on EBITDA through 2021. This acronym refers to earnings before interest, tax, depreciation, and amortization.

It's based only on earnings before interest and taxes beginning in tax year 2022, and this makes it more expensive for financial firms to borrow money. Companies would be less likely to issue bonds and to buy back their stock so stock prices could fall. But the limit generates revenue to pay for other tax breaks.

Businesses can deduct the cost of certain depreciable assets in a single year rather than amortize them over several years. But the equipment has to have been purchased and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.

The tax act stiffens the requirements on carried interest profits. Carried interest is taxed at the top long-term capital gain rate of 20% instead of the top ordinary income rate of 37% for 2022. Firms had to hold assets for a year to qualify for the lower rate before the TCJA took effect. This requirement now extends to three years. This can hurt hedge funds that trade frequently, but it shouldn't affect private equity funds that typically hold on to assets for around five years.


The TCJA also cut deductions for client entertainment from 50% of the cost to zero. But it retains the deduction for 50% of the cost of client meals.

Other Changes to Corporate Taxes

The TCJA eliminated the corporate AMT. This tax had a 20% rate that kicked in if tax credits pushed a firm's effective tax rate below 20%. Companies could not deduct the cost of research and development under the AMT.

Trump's tax plan incorporates elements of a territorial tax system in what was previously a "worldwide" taxation of companies operating abroad. Multinationals were taxed on foreign income earned under the worldwide system. They didn't pay the tax until they brought the profits home. Many corporations left their revenue parked overseas as a result.

The adoption of elements of territorial taxation allows companies to repatriate the approximately $1 trillion they've held in foreign cash stockpiles. They pay a one-time tax rate of 15.5% on liquid assets and 8% on illiquid assets under the TCJA.

The Federal Reserve found that U.S. firms repatriated $777 billion in 2018. That was around 78% of offshore cash holdings. Corporations increased buybacks of their stocks to improve share prices instead of investing those funds.

The TCJA also allows oil drilling in the Arctic National Wildlife Refuge. The drilling provision is estimated to add around $1.8 billion in revenue from 2019 to 2029. Half that money goes to the state of Alaska. 

Impacts on the Economy

The tax plan made the U.S. progressive income tax more regressive. Tax rates have been lowered for everyone, but they've been lowered the most for the highest-income earners.

The Trump tax cuts were estimated to cost the government $1 trillion, according to the Joint Committee on Taxation. This $1 trillion figure is the result of the overall $1.456 trillion the TCJA would cost over the long term, minus the roughly $451 billion it would create via an annual 0.7% growth in gross domestic product.

The Tax Foundation made a slightly different estimate. The tax cuts themselves would cost $1.47 trillion but savings would offset that figure by $1 trillion. The plan was expected to boost gross domestic product by 1.7% a year, create 339,000 jobs, and add 1.5% to wages.

The U.S. Treasury estimated that the bill would bring in around $1.8 trillion in new revenue and projected economic growth of 2.9% a year, on average.

With increased debt being the likely outcome of these tax cuts, it's important to understand how that debt affects the gross domestic product (GDP). The World Bank estimates that a nation's GDP decreases by 0.017 percentage points for every percentage point that its debt-to-GDP ratio increases above 77%.


The U.S. debt-to-GDP ratio was 104% before the TCJA took effect and it was 108% a couple of years later prior to pandemic-era spending that pushed the ratio to 135% by mid-2020.

Frequently Asked Questions (FAQs)

Who passed the Trump tax cuts?

President Trump signed the Tax Cuts and Jobs Act into law after it was passed by the two Republican-controlled chambers of Congress. Sen. Mitch McConnell was Senate majority leader at the time, and Rep. Paul Ryan was Speaker of the House of Representatives.

How much is the deficit going to increase with the Trump tax cuts?

The Tax Policy Center noted that the Congressional Budget Office and the Joint Committee on Taxation estimated before the TCJA that the law would add $1 to $2 trillion to the deficit.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. "H.R.1 - An Act To Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018."

  2. Tax Foundation. “Preliminary Details and Analysis of the Tax Cuts and Jobs Act.”

  3. IRS. "Estate Tax."

  4. Tax Policy Center. "How Did the TCJA Change the Standard Deduction and Itemized Deductions?"

  5. IRS. "Be Tax Ready—Understanding Tax Reform Changes Affecting Individuals and Families."

  6. IRS. "Qualified Business Income Deduction."

  7. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2023."

  8. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2022."

  9. IRS. "In 2017, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Are Unchanged."

  10. Tax Foundation. "How Many Taxpayers Itemize Under Current Law?"

  11. Congressional Research Service. "The Child Tax Credit: How It Works and Who Receives It," Page 1. 

  12. IRS. "Publication 5307, Tax Reform Basics for Individuals and Families," Page 7.

  13. IRS. "Publication 936: Home Mortgage Interest Deduction."

  14. IRS. "With New SALT Limit, IRS Explains Tax Treatment of State and Local Tax Refunds."

  15. IRS. "Topic No. 503 Deductible Taxes."

  16. Congressional Research Service. "Temporary Enhancements to Charitable Contributions Deductions in the CARES Act," Page 1.

  17. "H.R.1 - An Act To Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018," Page 131 Stat. 2087.

  18. Congressional Research Service. "Federal Individual Income Tax Brackets, Standard Deduction, and Personal Exemption: 1988 to 2023," Pages 45, 50-51, 54.

  19. Tax Policy Center. "How Did the TCJA Change the Standard Deduction and Itemized Deductions?"

  20. IRS. "Tax Reform Brings Changes to Qualified Moving Expenses."

  21. IRS. "Publication 5307, Tax Reform Basics for Individuals and Families," Page 1.

  22. IRS. "Retirement Savings Contributions Credit (Saver’s Credit)."

  23. IRS. "Reminder to IRA Owners Age 70½ or Over: Qualified Charitable Distributions Are Great Options for Making Tax-free Gifts to Charity."

  24. Congressional Research Service. "The Child Tax Credit: How It Works and Who Receives It," Pages ii, 1-2.

  25. IRS. "Publication 5307, Tax Reform Basics for Individuals and Families," Page 8.

  26. Congressional Research Service. "The Child Tax Credit," Page 2.

  27. IRS. "Questions and Answers on the Individual Shared Responsibility Provision."

  28. Tax Policy Center. “Corporate Top Tax Rate and Bracket, 1909 to 2022.”

  29. Tax Policy Center. "How Are Pass-Through Businesses Taxed?"

  30. IRS. "Basic Questions and Answers About the Limitation on the Deduction for Business Interest Expense."

  31. IRS. "New Rules and Limitations for Depreciation and Expensing Under the Tax Cuts and Jobs Act."

  32. IRS. "Topic No. 409 Capital Gains and Losses."

  33. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2022."

  34. Tax Policy Center. "What Is Carried Interest, and How Is It Taxed?"

  35. IRS. "IRS Issues Guidance on Tax Cuts and Jobs Act Changes on Business Expense Deductions for Meals, Entertainment."

  36. IRS. "Notice 2018-38: 2018 Fiscal-year Blended Tax Rates for Corporations." Pages 1-2, 4.

  37. Tax Foundation. “Designing a Territorial Tax System: A Review of OECD Systems.”

  38. Tax Foundation. "What Is a Territorial Tax System?"

  39. Board of Governors of the Federal Reserve System. "U.S. Corporations' Repatriation of Offshore Profits: Evidence from 2018."

  40. Congressional Budget Office. "Cost Estimate: H.R. 1146, Arctic Cultural and Coastal Plain Protection Act." Page 3.

  41. "H.R.1 - An Act To Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018."

  42. Joint Committee on Taxation. "Macroeconomic Analysis of the Conference Agreement for H.R. 1, the "Tax Cuts and Jobs Act," Download PDF. Page 3.

  43. U.S. Department of the Treasury. “Analysis of Growth and Revenue Estimates Based on the U.S. Senate Committee on Finance Tax Reform Plan, December 11, 2017.”

  44. ELibrary, World Bank Group. “Finding the Tipping Point–When Sovereign Debt Turns Bad.”

  45. Federal Reserve Bank of St. Louis. "Federal Debt: Total Public Debt as Percent of Gross Domestic Product."

  46. "Tax Cuts and Jobs Act; Congressional Record Vol. 163, No. 188." Page H9387.

  47. Tax Policy Center. "How Did the TCJA Affect the Federal Budget Outlook?"

Related Articles