Plenty of people are wondering how the GOP tax bill will affect them personally. Although pretty much everybody has been wondering, the Washington Post recently spotlighted a Mormon family with those questions. So I decided to take a look.
A quick disclaimer first: the answer is, it totally depends on your personal situation. And because of that, I’ve decided to construct an average (or sometimes median) Mormon family. I’ve constructed them with their Mormonism in mind where I could find specific Mormon stuff; where I couldn’t, I used Utah data. And I totally get that that’s not 100% accurate. Most Mormons aren’t in Utah, and a significant percentage of Utahns aren’t Mormon.
Still, it’s good enough to give a rough, blog-worthy estimate. So, without further ado, meet the Nephi family!
Brother and Sister Nephi are married and file a joint return. In 2018 they will have three children who are younger than 17 and live at home.[fn1] Brother and Sister Nephi will collectively earn $62,912 in wages. They own a home, and will pay $2,311 in mortgage interest. They will pay $1,351 in property taxes, and $2,386 in state income tax.[fn2] Finally, the Nephis will pay $6,300 in tithing.[fn3]
Current Law
Under current law, the Nephis have $62,912 in gross income. They have $12,348 in itemized deductions. In 2018, though, the standard deduction will be $13,000. Because a taxpayer must choose between itemized deductions and the standard deduction, the Nephis will choose the standard deduction. In addition, they get to deduct five personal exemptions of $4,150 each (for a total of $20,750).
Subtracting those two deductions from their gross income, the Nephis are left with taxable income of $29,162. That puts them in the 15% tax bracket; their initial tax liability will be $3,421.80.
But we’re not done yet: the current tax law also provides for a child tax credit of $1,000 per qualifying child. Credits reduce tax liability on a dollar-for-dollar basis; the Nephis, then, will be left with a federal income tax liability of $421.80.[fn4]
The Tax Bill
The tax bill makes a number of changes. For our purposes, there are three important changes: it doubles the standard deduction, eliminates personal exemptions, and increases the child tax credit. So how does that play out?
The Nephis will still not itemize. Instead, they will get a standard deduction of $24,000, leaving them with taxable income of $38,912 (because remember, personal exemptions are gone). That will put them in the 12% tax bracket, and they will have a tentative tax liability of $4,288.44.
The new child tax credit is $2,000 per child; the Nephis will thus have a credit of $6,000. Of that, up to $1,400 per child (or $4,200 total) is refundable. This means that the Nephis will not owe any income tax; in fact, they will get a refund[fn5] of $1,711.56.
But Wait! That’s Not All!
So the new tax bill reduces the Nephis’ income tax liability by a little more than $2,000. In 2018. But note that all of these things revert back to current law as of 2026. I’ve heard people argue that it’s just because of procedural Senate rules, and nobody will let things revert, but in today’s political climate, frankly, who knows.
So the Median Mormon Family Is Better Off Under This Bill, Right?
That’s not clear. The Nephi family pays less in taxes in 2018 under this bill than they would under current law, but better off is up in the air.
And why is that? A bunch of reasons. Perhaps most notably, the child tax credit—the thing that substantially lowers their tax bill—may not help them much longer. Remember, the expanded child tax credit is largely meant to replace personal exemptions, which go away under the bill. For purposes of the personal exemption, though, a “qualifying child” is a child up to 18, or, if your child is a full-time student, up to 23. For the child tax credit, though, a “qualifying child” cannot be older than 16. So once the Nephi’s oldest child turns 17, they’ve lost the $2,000 child tax credit, and they don’t have a deduction for personal exemptions.[fn6]
What does that mean? It means that if the Nephis were a slightly older family—say with a 17-, 19-, and 22-year-old (with the older two being college students)—under current law, they would pay $3,421.80 in federal income taxes (because they lose the $3,000 of child tax credits).[fn7] Under the new bill, though, they’ll owe $4,288.44. So for the older version of the Nephi family (the Laman family, I guess?), the tax bill represents a tax increase, even in year one.[fn8]
In addition, while most of these benefits go away in 2026, inflation adjustments move to chained CPI. Chained CPI grows more slowly than the CPI calculation the tax law currently uses, meaning the standard deduction and the brackets will grow slower. Essentially, that creates a stealth tax increase—in 2026, the Nephis will pay more in taxes than they would have under current law, even though the tax law will have reverted to current law.
Finally, the tax bill is set to raise deficits by about $1.5 trillion. With the increased deficit, the government may cut government spending, and, depending on where it makes those cuts, the cuts may affect the Nephi family. Alternatively, it could raise taxes in the future, which also may affect the Nephi family. (My point here is that tax cuts are only one side of a complex equation; simply saying that the Nephis will pay less in taxes, without taking into account government spending, doesn’t really answer the question of whether this is good or bad.)
So the tax bill: it will affect the Nephi family (and the rest of us), and it’s important to keep in mind that the ultimate effects of the bill will be complicated and will depend on our own personal circumstances. But it is clear that some not-insignificant portion of median Mormon families will see their taxes fall, while another not-insignificant portion will see them rise.
[fn1] Okay, trouble already. Pew said that Mormon women ages 40-59 had had, on average, 3.4 children. I can’t do fractions of children for tax purposes. Moreover, since some significant portion of Mormon families are younger than 40, presumably the median family size is smaller. So just for the heck of it, I’m choosing three kids.
[fn2] I have no idea how accurate the state income tax is; I used this calculator, put in the wages, married, 5 personal exemptions, and $8,611 in itemized deductions.
[fn3] Just FYI: I’ve chosen these numbers based on Google searches. I haven’t adjusted them in light of anything in the tax law—as of when I’m typing this, I have no idea what the tax consequences will be, either under current law or under the tax bills.
[fn4] You’ll owe a lot more than that in payroll taxes, but I’m not interested in payroll taxes for these purposes.
[fn5] Actually, they probably won’t—instead, the refundable credit will probably reduce their payroll taxes which, remember, they still owe.
[fn6] Okay, so I lied just a little bit. I didn’t adjust any of the numbers after the fact, but I did ensure that the children were young enough that they all qualified for the child tax credit. In my original draft, they were all younger than 18.
[fn7] For a little more explanation of this, you can take a look at my post on the Surly Subgroup. Note that u
[fn8] And maybe this is the right answer. Older people tend to be wealthier and have higher incomes than younger people, so maybe we want the tax cut to target young families. On the other hand, the fact that the older family has the same income as the younger family—and, given the expenses of older children, perhaps more expenses—suggests that achieving that result by cutting off the child tax credit is an imperfect mechanism to achieve this goal.