The 2020 presidential race is off and running, and there have been some early surprises in the first couple of contests. After having lagged by considerable margins in most polls leading up to February's Iowa caucuses and New Hampshire primary, Sen. Amy Klobuchar (D-Minn.) made good showings in both events and has seen an upsurge in support that has more people paying attention to her campaign.
Klobuchar has released her family's tax returns through the 2018 tax year, and one interesting thing to see is what impact the tax reform efforts that took effect in 2018 had on how much tax she paid. Klobuchar did pay more tax in 2018 than she did in 2017, but her family's income also rose. Below, we'll take a look at how the tax law changes that President Trump signed into law affected Klobuchar financially.
The bottom line: How much more Klobuchar paid
When you just compare how much federal tax Klobuchar paid in 2018 versus 2017, the answer is simple: She paid more in 2018. Total tax was $65,927 compared to $62,787, for a tax hike of $3,140.
If this were a hypothetical situation in which everything else about the tax situation -- income, deductions, and other tax breaks -- stayed the same, then you'd be able to stop here and draw a reasonable conclusion. But in real life, lots of other things change, so you have to look at the complete picture.
How tax reform hurt Klobuchar
There were a couple of ways that the Klobuchar household took financial hits as a result of tax reform laws:
- Changes to the rules governing itemized deductions hit the Klobuchar family especially hard. In 2017, the presidential candidate was able to claim more than $47,000 in itemized deductions, the bulk of which came from various types of state and local taxes. In 2018, the $10,000 limit on state and local tax deductions led Klobuchar not to itemize deductions at all, instead taking the $24,000 standard deduction.
- The removal of personal exemptions from the tax laws cost the Klobuchar family $8,100 in reductions to taxable income.
The combined impact of these provisions was enough to turn what would've been a lower tax bill into a higher one.
How tax reform helped Klobuchar
On the other hand, there were two primary ways that tax reform efforts helped the Klobuchar household:
- Klobuchar's marginal tax bracket dropped from 33% in 2017 to 24% in 2018. That's largely a consequence of the fact that tax reform extended relief from the marriage penalty to those with considerably higher incomes in 2018 than in 2017.
- Changes to the rules governing alternative minimum tax helped Klobuchar immensely. The senator's household paid more than $8,400 in AMT in 2017, but that amount fell to $0 in 2018 due to the tax law changes.
As you'll see below, these two things were instrumental in giving Klobuchar an overall more favorable tax experience in 2018 as compared to 2017.
The real reason Klobuchar's taxes went up
Yet the biggest contributor to Klobuchar's rising tax bill didn't have anything to do with tax reform. Instead, the key fact was that the Klobuchar household's overall gross income rose from 2017 to 2018. Wages rose by nearly $7,000 year over year, and more importantly, Klobuchar received $27,000 as an advance for an upcoming book.
Those items, along with the receipt of state tax refunds, boosted Klobuchar's gross income by nearly $46,000. The extra $3,140 in tax that Klobuchar paid works out to about 7% of the income boost. Put another way, Klobuchar's effective tax rate on total income fell from 21.5% in 2017 to 19.5% in 2018.
Voting against her interests
To be fair, Klobuchar did vote against the Trump tax reform package, joining all of her Democratic colleagues in the Senate in opposing the legislation. Nevertheless, it's interesting to see that although she suffered some of the negative impacts of tax reform, the tax-saving provisions ended up giving her a smaller tax bill than she would've paid under the old tax laws. As you start looking at your own 2020 tax planning, it's worth taking a look at whether you're taking advantage of everything tax reform is offering you.