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PERSONAL TAX LIABILITIES AND INCOME BEFORE TAX LIABILITIES, 2013–20

Before 2020, personal tax liabilities and average annual income trends moved together, both exhibiting strong upward trends through 2019, with a dip in 2017 in current U.S. dollars. Personal tax liabilities rose steadily from 2013 to 2016, with a total increase of 41.1 percent over this period. During this same period, average annual income increased 17.1 percent. In 2017, the year of the TCJA enactment, personal tax liabilities fell by 4.8 percent while average annual income fell by 1.5 percent, likely the result of the TCJA’s policies, such as the doubling of the standard deduction.

EVEN THOUGH TAX LIABILITIES DECREASED FOR ALL INCOME GROUPS, THE LOWER INCOME GROUPS SAW A MUCH LARGER DECREASE

Even though personal tax liabilities decreased for all income groups, these decreases were unequally distributed. The lowest two income groups had larger percentage declines, compared with the higher income groups. Between 2019 and 2020, personal tax liability of the lowest group decreased by a considerable 828.0 percent and the second lowest income group decreased by 943.5 percent. The higher income groups reduced their personal tax burden by a comparatively small 61.1 percent and an even smaller 4.1 percent for the second highest income group.

The Tax Cuts And Jobs Act Increased Personal Tax Liabilities For Consumer Units With A Reference Person Over 65

In 2017, personal tax liabilities increased by 25.5 percent for consumer units (CUs) with a reference person 65 years and older because of rising income.7 However, for CUs with a reference person under 65, tax liabilities fell by 7.9 percent.

Personal Tax Liabilities Increased For Renters But Fell For Homeowners In 2017

In 2017, trends in personal tax liabilities differed for homeowners and renters. While personal tax liabilities for homeowners decreased by 11.3 percent from 2016 to 2017, they increased by 28.7 percent for renters. These different trends occurred despite the TCJA’s capped mortgage itemized deduction (increasing tax liability burden for homeowners) and increased standard deduction (lowering tax liability burden for both homeowners and renters).

The trends of personal tax liabilities for homeowners and renters likely went in different directions due to different income levels. Average annual income for homeowners decreased by 3.8 percent, while the average annual income of renters increased by 5.3 percent, and these changes in income affected personal tax liabilities more than the TCJA’s tax code changes.

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