Beginning in 2018, tax law changed under President Trump, with the most significant changes and reductions occurring to corporate taxes. The new tax law keeps the seven tax brackets that existed under President Obama, with the bracket amounts adjusted slightly. However, the tax rates that apply to each tax bracket were generally reduced. This was very similar to what was implement in the tax changes under President Bush – the tax rates that applied to each bracket were generally reduced. Also similar to the tax law implemented under President Bush, the changes implemented in 2018 are for a limited period of time. The changes begin in 2018 and expire after 2025, unless extended by law. The 2018 tax tables are below.
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
| 10% | $0 – $9,525 | $0 – $19,050 | $0 – $9,525 | $0 – $13,600 |
| 12% | $9,526 – $38,700 | $19,051 – $77,400 | $9,526 – $38,700 | $13,601 – $51,800 |
| 22% | $38,701 – $82,500 | $77,401 – $165,000 | $38,701 – $82,500 | $51,801 – $82,500 |
| 24% | $82,501 – $157,500 | $165,001 – $315,000 | $82,501 – $157,500 | $82,501 – $157,500 |
| 32% | $157,501 – $200,000 | $315,001 – $400,000 | $157,501-$200,000 | $157,501- $200,000 |
| 35% | $200,001 – $500,000 | $400,001 – $600,000 | $200,001-$300,000 | $200,000-$500,000 |
| 37.6% | over $500,000 | over $600,000 | over $300,000 | over $500,000 |
Significant changes were made to deductions and exemptions under President Trump relative to President Obama. The standard deduction amount was approximately doubled, increasing from $6,350 to $12,000 for single taxpayers (and from $12,750 to $24,000 for married filing jointly taxpayers). However, exemptions were repealed, meaning that there is no longer a $4,050 deduction allowed for each exemption (basically dependent).
Using our example for a single taxpayer, in 2017 the standard deduction was $6,350 and personal exemption $4,050, for a total deduction amount of $10,400, For 2018, the deduction amount would be $12,000 – the standard deduction; there is no personal exemption. For those taxpayers interested in itemizing deductions, certain deductions became more limited. The deduction for state and local taxes (including property taxes and income taxes) is now capped at $10,000. The increase in the standard deduction amount and limited deduction of state and local taxes will likely result in fewer taxpayers itemizing deductions. Long-term capital gains and dividends are taxed under the new tax bill very similarly to what was in place under President Obama, including the 3.8% additional investment tax on high-earners. A key revision under the new tax bill – the repeal of the Affordable Care Act’s individual insurance mandate. A penalty is no longer paid if an individual does not have health insurance.
In summary, the new tax law implemented under President Trump in 2018 kept the same number of tax brackets as had been in existence under President Obama. Tax rates in each bracket were reduced relative to what was law in 2017, which was very similar to what occurred in 2003 under President Bush. Other significant changes in 2018 tax law included an almost doubling of the standard deduction, elimination of the deduction for exemptions, and a cap on the itemized deduction amount allowed for state and local tax deductions. Taxes on investment income remained similar under President Trump to what was in existence under President Obama.
CBEI Blog Series: Income Taxes – Bush vs. Obama vs. Trump
Part 1: Intro
Part 2: Federal Individual Income Tax Overview, How it Works
Part 3: President Obama vs. President Bush
Part 4: President Trump vs. President Obama
Part 5: Corporate Incomes – Briefly but Importantly
Kevin Bahr is a professor emeritus of finance and chief analyst of the Center for Business and Economic Insight in the Sentry School of Business and Economics at the University of Wisconsin-Stevens Point.