TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, March 7, 2018

What The New York Times' TurboTax Defense And A 'Liberal Law Professor' Say About The Trump Tax Cuts

Turbo TaxWall Street Journal op-ed:  The TurboTax Defense, by James Freeman:

A New York Times correction blames the popular software, but a liberal academic still isn’t satisfied.

The search continues for Americans who will not benefit from the Trump tax cuts on individual and corporate income. The New York Times has corrected a story this column described last week that originally forecast a much larger tax bill for a hypothetical New York couple. Now the paper acknowledges that the tax bill for such a couple would actually be lower and is blaming a popular software product for the error. But a liberal law professor says the Times still doesn’t have the story quite right.

That also goes for much of the media, which has devoted enormous coverage to the possibility of higher taxes on some Americans, even though the overwhelming majority are receiving tax cuts. And of course all Americans will benefit if the new tax law works as intended and encourages increased investment, faster growth and rising wages.

As for the confusion at the Times, the paper’s particular example was an imaginary couple named Samuel and Felicity Taxpayer. The Times described their imaginary family, including two children and an elderly parent living in the household. The paper elaborated: “Both Samuel and Felicity earn income, she as an employee of a design firm and he as a self-employed engineering consultant.” And the Times sketched out the family finances, writing that “their total income for 2017 was $183,911, but after deductions, their taxable income is $88,293. In 2018, it would be $116,097.”

The Times concluded that their fictional family would owe a whopping $3,896 more in taxes under the new law. But on Friday, the Times published the following:

Correction:  March 2, 2018
An earlier version of this article incorrectly described the probable effect of the new tax law on a hypothetical couple’s 2018 tax bill. The TurboTax “What-If Worksheet” that generated the projection for their 2018 taxes failed to indicate that the couple would probably be entitled to claim a sizable deduction for income earned from consulting. As a result of that deduction, the amount they would likely owe on taxes would decline by $43, not rise by $3,896.

That’s quite a difference for our imaginary couple. But what if this is not the end of the story? Daniel Hemel, who teaches tax law at the University of Chicago and flagged problems with the original Times story, suggests that Times editors still don’t understand how much savings the hypothetical couple would enjoy under the Trump tax cuts.


The Times is not alone in failing to appreciate the benefits of tax reform. And if the paper is still trying to get a handle on the details of the Republican plan enacted in December, it can hardly be a shock to readers.

But TurboTax is another story. Millions of Americans rely on the software to guide them through the morass of state and federal tax regulations. Has the software been updated to reflect recent changes in the law?

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..."of course all Americans will benefit if the new tax law works as intended and encourages increased investment, faster growth and rising wages." Oh, you mean trickle down? I won't hold my breath.

Posted by: dgmoe | Mar 7, 2018 9:20:16 AM

In envy-driven dgmoe world, if Trump's economic policies result in a standard of living increase of X for a middle class couple and 2X for an upper-middle class couple, trickle down isn't working for the middle class couple.

Posted by: Mike Petrik | Mar 7, 2018 2:01:18 PM

dgmoe: "Oh, you mean trickle down? I won't hold my breath."

It's trickle up, actually. Come on, at least read the legislation. They're doubling the standard deduction to $24,000 per couple. That has the biggest impact on the lowest income levels.

I hope you do hold your breath!

Posted by: MM | Mar 7, 2018 6:22:33 PM

If 2018 law had applied to my 2017 tax return, I would have paid $730 more in tax, as outlined below. Anyone can double check my numbers. I am a tax law professor, and the wages are my salary as a law professor. I am an unmarried homeowner (with a paid-off mortgage) with no children, so my tax return is straightforward. The reason I will pay more is because of the repeal of the personal exemption deduction and the $10,000 cap on state and local income and property taxes.

$112,667 wages
plus 84 interest
plus 541 taxable refund of 2016 state and local taxes
plus 2,556 annuity payments
115,848 AGI
less 20,983 Itemized Deductions ($4,107 Ohio income tax, $3,903 Cleveland
income tax (place of employment), $2,376 University Heights
income tax (place of residence), $8,438 Cuyahoga County
real property tax (residence), and $2,159 charitable contributions)
less 4,050 Personal Examption Deduction
$90,815 Taxable Income
18,445 Tax Due for the 2017 tax year

If the TCJA had applied (and thus my 2018 tax if my income is the same)

$112,667 wages
plus 84 interest
plus 541 taxable refund of prior-year state and local taxes
plus 2,556 annuity payments
115,848 AGI
less 12,159 Itemized Deductions ($18,824 state and local income and property
tax paid but only $10,000 deductible plus
$2,159 charitable contributions)
less 0 Personal Exemption Deduction (repealed)
$103,689 Taxable Income
$19,175 Tax Due (using 2018 rate tables)
$730 more than in 2017

Posted by: Deborah A. Geier | Mar 8, 2018 4:01:56 PM

I had no idea income taxes could be higher in Ohio than California. A 9% average tax rate on $112k must be close to the maximum in the US. It's almost as if they want all affluent people to leave the area.

Posted by: AMTbuff | Mar 9, 2018 4:13:29 AM

To Prof Geier:

First, very informative post and thank you for laying out your personal tax information. A solid example is very useful to look at.

Given that you live in a high tax area, I suggest voting for local politicians that will lower your local tax rate. I see no reason why high tax states should be subsidized by lower tax states when it comes to calculating the amount owed to federal taxes.

Posted by: JWJ | Mar 10, 2018 8:59:14 AM

Prof Geier:

I would hope you don't have to pay tax on the refunded $541 of local taxes given that that number was refunding part of the $8000 in local taxes that were not able to deduct. Also, I get 18661 for you tax in 2017. Neither of these points change the fact that you would pay more.

Posted by: WS | Mar 12, 2018 4:43:50 AM