Understanding the cost of Tax Cuts and Jobs Act’s family provisions

The approaching expiration of the temporary provisions in the 2017 Tax Cuts and Jobs Act (TCJA), combined with growing concerns about the deficit and national debt, has reignited debates over whether Congress can justify extending this signature Republican tax legislation. The headline price tag for extension–which would add trillions to the deficit–belies a complex mix of provisions with varying net costs. The complex mix of provisions include some that reduce revenue while others were designed to raise revenue, partially or fully offsetting the cost when considered together. 

The so-called “family provisions,” which include a larger standard deduction and child tax credit (CTC), are a prime example. Speaker Paul Ryan’s A Better Way tax blueprint explicitly proposed pairing these provisions with the elimination of personal exemptions to simplify the tax code for families in a way that approached revenue neutrality. 

Before the 2017 changes, taxpayers would claim a less generous standard deduction ($6,500 for single, $9,550 for head of household, and $13,000 for married filers) for the household and add on additional personal exemptions ($4,150) for the tax filer, their spouse, and any children or dependents. Deductions and exemptions lower the amount of a household’s income that is subject to taxation, meaning their value is tied to the marginal tax rates a household would otherwise face. Additionally, before TCJA, parents could claim a $1,000 CTC for each child. As a credit, households could receive a refund exceeding their tax liability, as the credit was partially refundable, offering greater financial support to eligible families.

Under the TCJA, Congress increased the standard deduction to $12,000 for single filers, $18,000 for head-of-household filers, and $24,000 for married couples filing jointly. The CTC was also doubled to $2,000 per child, while personal exemptions were eliminated. 

Additionally, the TCJA raised the CTC phaseout thresholds–from $200,000 for head-of-household filers and from $110,000 to $400,000 for married couples filing jointly. These changes aimed to reduce marriage penalties and ensure that families would not be worse off overall under the new framework. Figures 1 and 2 visualize the changes made under TCJA.

Figure 1. Tax benefits for a married couple before/after TCJA

Figure 2. Tax benefits for a child before/after TCJA

The reforms had their intended effect, boosting family benefits while simplifying taxes for American taxpayers. Low and middle income families saw a net increase in after-tax income from these provisions. The proportion of households itemizing deductions dropped from 31% to 9%. The money saved by eliminating personal exemption also substantially offset the cost of expanding the standard deduction and CTC. 

When evaluating the budgetary implications of extending the TCJA, it is important to recognize that a “clean” extension–maintaining current provisions without additional adjustments– would largely offset the costs of the family provisions by continuing the repeal of personal exemptions. 

Table 1 breaks down cost estimates from the Joint Committee on Taxation (JCT), Tax Foundation, and Committee for a Responsible Federal Budget (CRFB) for the family provisions and TCJA more broadly.

Table 1: Cost of extending TCJA family provisions versus entire package

The elimination of personal exemptions offsets a substantial portion of the new cost of expanding the standard deduction and CTC for families. These changes account for only 7-10% of potential total costs. Specifically, when considering the expanded CTC alongside the repeal of personal exemptions for dependents, the net cost is $140 billion over ten years, according to CRFB. If we broaden our view of these changes as part of a larger package of household tax reform that includes changes to the mortgage interest deduction, state and local tax deduction, other itemized deductions, alternative minimum tax, and Pease amendment, then the net cost may be even lower depending on the estimate.

Without substantial increases in revenue or spending cuts, the cost of expanding the TCJA in its entirety may be financially unsustainable. However, extending the family provisions is a much more manageable expense in comparison. Congress has the opportunity—and the responsibility—to identify feasible ways to fund the extension, or even the expansion, of these family-focused measures. By implementing smartly designed offsets, lawmakers can ensure that these provisions continue to support families.