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The Tax Policy Center has updated its baseline distribution tables to reflect the changes of the 2017 Tax Cuts and Jobs Act (TCJA) as well as the most current economic assumptions. The new tables reflect tax law distribution among income groups for 2017-2028. You can find the new baseline models here. An updated description of TPC’s model is here.
Besides making many technical changes, the revisions show the effect of TCJA on both effective tax rates and marginal tax rates. They also show the effects of the TCJA in 2018 and again in 2026, after key provisions expire as scheduled.
The updated model finds the TCJA reduced the overall effective federal tax rate from 19.4 percent in 2017 to 17.8 percent in 2018 (see Tables T18-0081 and T18-0083). This is mostly driven by a drop in the effective individual income tax rate from 9.8 percent to 8.7 percent and a cut in the effective corporate rate from 2.0 percent to 1.4 percent.
While the lowest income households see little change, most other income groups receive relatively large tax cuts. The biggest benefits go to high-income households, though benefits for the highest income 0.1 percent are not as large as those just below them in the income distribution. High-income households benefit mostly from the corporate tax cuts (TPC distributes corporate taxes among capital, shareholders, and workers). Middle-income households benefit primarily from cuts in the individual income tax.
Once most individual income tax provisions expire at the end of 2025, TPC estimates that effective federal tax rates will rise from 19.0 percent to 20.3 percent. Most of the increase will be due to a hike in the effective individual income tax rate from 9.4 percent to 10.8 percent. Upper income households who benefited the most from the tax cuts will be hit the hardest when they are reversed.
The updated tables also show the effective marginal tax rates (EMTR) for wages and salaries, capital gains, and dividends. (see Tables T18-0105 and T18-0107).
The TCJA’s tax rate cuts significantly reduce the EMTR on wages. But the law also reduces the EMTR on investment income for high-income taxpayers even though the 2017 law did not directly change tax rates on capital gains. The biggest reason: the TCJA sharply scaled back the Alternative Minimum Tax, which had added 5 percentage points to the marginal tax rate on capital gains for some taxpayers.
For example, the EMTR on capital gains income falls from 22.4 percent to 19.3 percent for those in the 95th-99th percentile. The pattern will reverse in 2026, after the individual provision of the TCJA expire. See Tables T18-0111 (for 2025) and T18-0113 (for 2026) for details.
There isn’t a lot of breaking news in these updates. The projected effects of the TCJA in the new tables are similar to what TPC found back in December. But the updates will be a valuable resource for those seeking to understand the effects of the new law, and of any changes Congress may make in the future.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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