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Dispatches Tax Strategies

Comparing the Standard Deduction With and Without the TCJA

An illustration of how much the standard deduction has grown while the Tax Cuts and Jobs Act has been in effect.

by Charles Rotblut | December 2024

Charles Rotblut leads a class in AAII's new Essential Investing Video Course. Go to https://www.aaii.com/ves for more information and to subscribe.

The standard deduction was claimed on 91% of tax returns filed in 2023, a significant jump from 68% in 2017. This increase is largely attributable to the near doubling of the deduction mandated by the Tax Cuts and Jobs Act (TCJA) of 2017. Unless Congress passes new legislation, the deduction will revert to pre-TCJA levels after December 31, 2025.

To illustrate how much the standard deduction has grown during the TCJA era, let’s revisit its historical changes.

In 2017, the standard deduction for married couples filing jointly was $12,700 and was set to increase to $13,000 in 2018. However, the TCJA raised the standard deduction to $24,000 instead. Since then, it has steadily risen, reaching $29,200 this year and $30,000 next year.

Notably, while the higher standard deduction is slated to sunset, one key change from the TCJA will not: the adoption of the chained consumer price index (CPI) for inflation adjustments. Unlike the traditional CPI, the chained CPI accounts for shifts in consumer behavior when relative prices change, resulting in slower calculated inflation rates.

This permanent change allows us to project what the standard deduction would have been without the TCJA significantly increasing it. Applying inflation data since 2018 to the pre-TCJA deduction, we find a notable difference: In 2018, the TCJA increased the deduction for joint filers by $11,000, and by next year, it will be $13,800 higher than it would have been otherwise.

The future of the standard deduction depends on congressional decisions. Given its widespread use, there is likely to be pressure to maintain it at higher levels. However, your effective tax rate—the percentage of your total income paid out in taxes—depends on many factors, not just the standard deduction.

Figure 1. Actual vs. Pre-TCJA Standard Deduction (2018–2025)

The green bars represent the actual standard deduction, whereas the blue bars assume the deduction if the Tax Cuts and Jobs Act (TCJA) of 2017 was not in place.

Figure 1 Actual vs. Pre-TCJA Standard Deduction (2018–2025)

Source: Internal Revenue Service (IRS) and AAII.

Discussion

BARRY J from TX posted over 1 year ago:

Taking a standard deductions has an alternative; you can take an itemized deduction. But that requires increased records keeping, organized documentation, more math, and additional tax preparation work, understanding the tax laws in greater detail, and may increase filing fees due to the extra work at every stage of the process. The TCJA should be viewed as a taxpayer-friendly improvement that simplifies a complicated tax system to enable taxpayer compliance and simplified IRS surveillance. Many see TCJA as one of the first efforts (in 2017) to make government regulation less burdensome. Many people are expecting more changes like TCJA near term as compliance with government regulations gets simplified and reduces unnecessary expenses for both taxpayers and tax collectors.


RANDALL L from CA posted over 1 year ago:

Simple is good but the TCJA added considerably to our national debt (between one and two trillion dollars) - and while I am personally gaining by the current low tax environment I can't feel good about the debt legacy we are leaving behind. This has less to do with which party is in charge as they both seem to be debt happy these days.


STERLING C from NY posted over 1 year ago:

Two quick points 1) The majority of all American households are file as single or head of household so the above chart is not representative of the majority of tax filings. and 2) one of the casualties of TCJA was the death of the individual exemption which should be included with the prior version of the standard exemption since that was also in the basic math of all returns that filed using the standard exemption prior to TCJA.


JOE D from CA posted over 1 year ago:

One of the recent tax changes that hangs over us Californias is the limited amount of deduction for property and state income or sales taxes - that is $10,000.00. In high tax states and high property values like California we really cannot itemize. This SALT provision forces us to take that very high standard deduction, $30,000 for 2025. In prior years another deduction was charitable donations which use taken on top of the property and income deductions. So now if donations are less than $20,000 the standard deduction is used. We use to rationalizes a donation by thinking the state and Federal government was giving us back about 35% of every dollar donated. Not true any more.


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