2017 vs. 2018 federal income tax calculations. Tax (solid line) and effective tax rate (dotted line) vs. AGI.

by chargePerSecond

 

To get a sense of the trend as one increases in tax brackets, I took one common tax situation (married, filing jointly) and plotted federal income tax vs. adjusted gross income (AGI). I also plotted the effective tax rate vs. AGI (dotted lines, right y-axis) which is simply the total tax divided by the AGI .

My real motivation for these calculations is shown in the second (right) plot which compares 2017 vs. 2018 federal income taxes. Since the start of tax season, I’ve heard plenty of speculation about whether people paid more or less taxes under the new tax law. However, nobody has been able to support their claim with any real numbers, so I wrote a tax calculator, first in Excel then a more robust version in Python. I have verified my calculation via my past income tax statements and online calculators.

My conclusion is that people have saved money under the new tax law. I personally paid 20% less under the 2018 law than I would have under the 2017 law. The plot on the right shows that every income bracket (ranging from $0-1 million) would owe fewer taxes in 2018 (red line) than they would in 2017 (blue line). Of course, as one climbs the tax bracket ladder, they are more likely to itemize deductions rather than take the standard deduction. For this reason, I have included an inset plot that ranges from $0-150k. I think that people in this range are more likely to benefit from the standard deduction rather than itemization.

I am open to all questions regarding these calculations as well as suggestions for improving the readability of the plots. Do you think I left something out? Could I have compared the calculations differently? Do you think I made a mistake? Have I misrepresented something? Please scrutinize everything you read online.

Assumptions:

I have used tax bracket information found HERE.

Household: husband, wife, no children

2018 calculations: $24,000 standard deduction

2017 calculations: $12,700 standard deduction, personal exemption of $4,050×2=8,100 for me and my wife.

Disclaimer: I am not a tax expert. I have simply used basic tax calculations based on tax brackets, standard deductions and personal exemptions to generate these plots. There are many different tax situations that could affect the bottom line tax value, i.e. children, investments, business ownership, ect. I have only considered one very simple situation that I think covers a large number of Americans.

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