2017 Tax Law
The Tax Cuts and Jobs Act (TCJA) was a major overhaul of the tax code, signed into law by President Donald Trump on Jan. 1, 2018.
The legislation included some of the biggest changes to the tax code in three decades. The reform impacted both taxpayers and business owners alike. Many of the tax reform benefits for individuals will expire in 2025.
The 2017 Tax Law Only Helped The One Percent. Working Families in Colorado Were Left Behind
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The federal tax law passed in 2017 may have been named the Tax Cuts and Jobs Act, but working families in Colorado have yet to see much benefit. That’s no accident: the law was designed to slash taxes for large corporations and the wealthiest Americans–and to shift the burden onto working families.
Most notably, the law cut the corporate tax rate from 35% to 21%, which means that major corporations saw their taxes reduced by a massive 40%. Guess who is picking up the tab? Working Americans who have seen popular deductions for individuals capped, particularly in places like Colorado that impose a state income tax.
Now, with several key provisions of the 2017 law set to expire by the end of 2025, it’s time to take a hard look at who has really benefited and figure out how to create a tax system that’s fair in Colorado and across the country.
The 2017 Tax Law: Winners and Losers
The clearest winners from the so-called Tax Cuts and Jobs Act were the wealthiest Americans.
Here in Colorado, the richest one percent were projected to receive 26% of the benefit, while the poorest 20% of our neighbors would receive just one percent of the benefit. And this gap is only going to get worse. By 2027, the tax burden for the bottom 40% of Americans will actually increase.
When the law was originally passed, advocates promised that it would lead to a rise in workers’ wages. They estimated that average household incomes would increase by $4,000 or more annually, but the law has fallen far short of this promise. It has been primarily high-paid executives, not workers, who have enjoyed income bumps related to the law. And in addition to income tax, the law doubled the estate tax exemption, allowing wealthy couples to pass on up to $22.8 million tax-free when they die.
Here in the Centennial state, working families have actually fared worse than residents of other states for a couple of reasons:
First, Colorado has a hybrid tax system. While our mix of sales tax, state income tax, and property taxes offer some protections for low-income families, it still favors the wealthiest earners, who have historically paid the lowest overall tax rates. It’s the mid-range families, those who earn between $52,000 and $95,000 annually, who had been saddled with the highest overall tax rates even before the federal law was passed.
Second, while the 2017 tax law cut federal taxes, it also capped the popular deductions that many families used to lower their taxable base, including mortgage interest tax deductions for homeowners and the state and local tax deductions that Coloradans had long relied on to offset our 4.4% state income tax. All this meant that any savings Coloradans made on their federal taxes were quickly offset by higher state taxes.
The Biggest Beneficiaries: Wealthy Corporations
Many of the country’s most profitable corporations saw the biggest benefit from the 2017 tax law. For example, the effective tax rate for Facebook parent company, Meta, plummeted from 28 percent to 18 percent, saving the company $8 billion in federal taxes between 2018 and 2021. Telecom giant Verizon saw its effective tax rate cut by more than half, saving the company a whopping $10.7 billion in this period.
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One of Colorado’s biggest corporations, the Fortune 500 company Arrow Electronics, paid no federal income taxes at all in 2018. After the law took effect, Arrow saw its effective tax rate drop to negative seven percent, even though it reported more than $167 million in revenue for the year.
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What’s Expiring in 2025?
While the corporate tax cuts baked into the 2017 tax law will remain permanent, most of the policies affecting individuals and families are set to expire at the end of 2025. In fact, the only provision affecting individuals and families that is not set to expire is a clause that actually raises taxes on low- and middle-income taxpayers beginning in 2027.
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This March, the Republican Study Committee introduced a budget proposal that would make those temporary provisions permanent, alongside other policy proposals like a permanent repeal of the estate tax for the wealthiest Americans.
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All told, if every section of the 2017 law was made permanent, the top one percent of Coloradans would see a tax cut of more than $27,000 in 2026, while the poorest 20% would get virtually nothing.
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The impact of making the expiring provisions permanent would extend far beyond individual families. The Congressional Budget Office estimates that doing so would expand the federal deficit by $4.6 trillion dollars over the next decade alone, even as it increases the gap between the wealthiest Coloradans and the rest of us.
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Building a Fairer System
At this point, Congress has two choices: either let tax cuts for the rich expire and build out a fairer tax system or keep in place the policies that benefit the wealthiest Americans at the expense of working families.
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President Biden has already proposed an alternative–a budget that prioritizes generating revenue from wealthy people and corporations while lowering costs and cutting taxes for working Americans.
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This budget proposes raising the corporate tax rate from 21 percent to 28 percent. This would still be lower than in 2017, but it would ensure that corporations pay their fair share while generating more than $1.35 trillion in revenue.
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It would also bring capital gains tax in line with the tax on wages. Currently, federal taxes on investment income are capped at 20 percent instead of the 37 percent cap for taxes on wages. This imbalance has always benefited the wealthiest Americans, who are far more likely to make their money through investments rather than from their salaries. President Biden’s budget proposal would eliminate this disparity so that any income over $1 million would be taxed at the top rate, regardless of how it’s earned.
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The President’s budget proposal would also shrink an existing tax break that corporations get for outrageously high executive compensation. Currently, corporations can actually take a deduction when they pay their executives exorbitant sums. President Biden’s proposal would disallow a deduction on any compensation package of more than $1 million. This provision alone would generate more than $270 billion in revenue over the course of a decade.
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Finally, the Biden budget would reform the inheritance tax. Under the current system, when a wealthy individual dies, her heirs only pay taxes on the original price of her investments, no matter how much the value has increased over time. This budget proposal would limit that.
Extending the 2017 tax law would hurt Colorado’s working families. We don’t have to accept a tax code that prioritizes corporations over families or the one percent over everyone else.
Rather than holding on to the worst provisions of the 2017 law, the President’s proposal lays out a blueprint for a fairer tax code, one that would give a boost to working Coloradans and insist that corporations and the wealthy pay their fair share.​​​​​
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