This week IWF will be running a series featuring profiles of different American women and how they will be affected by the latest tax reform legislation. Special thanks to analysts at The Tax Foundation, who provided the calculations for each profile.
Today, meet Cathy. Cathy and her husband Mark have three children and a household income of $50,000. Mark is a teacher; Cathy is a stay-at-home mom.
Without the tax reform law, their family could take personal exemptions of $20,750 and a standard deduction of $13,000, leaving them with a taxable income of only $16,250. They would pay $1,625 in federal income taxes, except that they qualify for child tax credits of $3000 ($1000 per child) and an earned-income tax credit (EITC) of $1052.59. Cathy and her family have a negative income tax bill of $2,427.59.
Under the new tax law, Cathy and her family will be much better off. The law removes personal exemptions, but nearly doubles the standard deduction to $24,000. This leaves Cathy’s family with $26,000 in taxable income (more than under prior law), but because the child tax credit increases, they fare better than before.
The child tax credit will now be $2000 per child, $1400 of which is refundable. Cathy keeps the same EITC as before, and her family’s total bill is now negative $4313.59. This is the difference of $1,886. That’s money that Cathy and Mark can use for diapers, food, or saving for college tuition. That’s a good deal for Cathy, and a good deal for women like her.
Importantly, the amount of Cathy’s tax cut will not be atypical under the new tax law. Even according to the left-leaning Tax Policy Center, the average tax cut in 2018 will be $2,140. That will make a serious difference to millions of families and to the economy as a whole.