Bring Back the Personal Exemption: TCJA Tax Reform Hypocrisy

The Tax Cuts and Jobs Act (TCJA) billed itself as a tax cut for middle-class families. However, by taking away the personal exemption, the tax reform bill of 2017 hurt many middle-class taxpayers, especially America’s big families. Regardless of your politics, it is worth taking the time to understand how the TCJA hit at the core of America – its big families – by eliminating this tax break. The loss of the personal exemption in the TCJA is a financial assault on the very constituents TCJA purports to serve.

The Big Subtraction of the Personal Exemption

Sparing you the tax minutia*, when Congress reformed taxes in 2017 with the stated goal to reduce taxes for American families, they enacted two potentially beneficial elements: raising the child tax credit from $1,000 to $2,000 and lowering tax brackets, which reduced taxes for some taxpayers. However, they also repealed a tax break called the “personal exemption,” which, in simple words, lets you subtract (in 2017) $4,050 for every person listed on your tax return. That means that married taxpayers with six kids got to subtract eight (2 for you/your spouse and 6 for each of the kids) times $4,050 from their taxable income or $32,400 from their taxable income. And, in addition to that personal exemption reduction, they still got a child tax credit of $1,000 per kid under 16 in addition to that $4,050 subtraction to the tune of $6,000 for six little kids or a total subtraction from income of $38,400). For larger families, the loss of that $4,050 personal exemption meant that the TCJA was a tax increase, not a tax cut.

Unfair to Big Families

This tax change becomes even more gallingly unfair to your big family as your kids get older. As the kids grow up, you’re going to get socked even worse because as each kid reaches age 17, you lose that $2,000 TCJA Child Tax Credit. Before TCJA, we had a $1,000 per child Child Tax Credit plus a $4,050 personal exemption for each kid for total subtraction of $5,050 per child under 16 and $4,550 for college kids. The TCJA increase in the Child Tax Credit to $2,000 per kid helps offset the loss of the personal exemption, but it doesn’t equal it out. The Child Tax Credit is $2,000 (in 2019) and the personal exemption had been about $4,000 (it had been going up slightly each year and in 2017 was $4,050, plus you still got that $1,000 Child Tax Credit per kid with it), so losing the exemption with a non-commensurate raise in Child Tax Credit certainly isn’t equivalent.

Parents can claim their kids as dependents (i.e., tax deductions) up until age 24 if those kids are in college. Since many children go to at least two years of college