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Despite President Trump’s repeated promise that an upcoming tax cut would be the biggest in US history, the proposal now being considered by the House Ways & Means Committee would provide a modest average income tax reduction in 2018 and an even smaller average tax cut in a decade, after key provisions are scheduled to expire. And many would get no tax cut at all. About 7 percent of households would pay higher income taxes in 2018 and one-quarter would face a tax increase in 2027.
Among all households, according to a new analysis by the Tax Policy Center, the Tax Cuts and Jobs Act would cut 2018 taxes by an average of nearly $1,200, a 1.6 percent increase in after-tax incomes. By 2027, the average tax cut would decline to about $700, or 0.7 percent of after-tax incomes. The highest-income households would be the biggest beneficiaries in both 2018 and 2027.
In 2018, the bill would cut taxes for middle-income households by an average of about $800 or 1.5 percent of their after-tax incomes. Those in the top one percent would get an average tax cut of $37,000, or 2.5 percent of their after-tax incomes.
However, the bill would affect people of similar incomes in very different ways, depending on their circumstances. In 2018, nearly 90 percent of middle-income households (who make between about $49,000 and $86,000) would see a tax cut averaging about $1,100. However, nearly 10 percent would face a tax increase, averaging about $1,000. Among the top 1 percent (who make $732,000 and up), 80 percent would get a tax cut, averaging about $64,000, and 20 percent would be hit with a tax increase, averaging about $43,000.
By 2027, about 31 percent of middle-income households would pay an average of $1,150 more in taxes than under current law. Two-thirds would still get a tax cut, averaging the same $1,100 as in 2017. Among the top 1 percent, two-thirds would pay an average of $123,000 less, and one-third would pay an average of $62,000 more.
A separate study by the congressional Joint Committee on Taxation found that in 2019, about 8 percent of households would pay at least $100 more in taxes than under current law, one-third would see a tax change of less than $100 (some would get a small cut and some a small increase), and 43 percent would get a tax cut of more than $500—largely high-income households. However, by 2027, nearly 20 percent would pay at least $100 more than under current law, one-third would see a change of less than $100, and less than half would get tax cuts of more than $100.
Because the bill would lower tax rates for some households while eliminating many key income tax preferences that affect only certain taxpayers, households making the same amount of money could be affected very differently, depending on the size of their families, where they live, and how they make their living. For example, the bill’s proposed repeal of the state and local tax deduction (except for some property taxes) would hit people living in high-tax states much harder than those living in low-tax states.
At the same time, many of the 2018 tax reductions would disappear over time in part because some are scheduled to expire in five years, and in part because much of the individual income tax code would be indexed for inflation using a less generous formula than today. Over time, that formula, called chained CPI, would push more people into higher tax brackets and lower the value of some tax benefits such as the Earned Income Tax Credit.
While many high-income households would pay income tax rates that are at least as high as under current law (and in some cases higher), they would be the big beneficiaries of the bill’s proposed business tax cuts—both for corporations and for pass-throughs such as partnerships.
The bill now being debated by the House Ways & Means Committee would fall far short of President Trump promise of an historic tax cut. Indeed, for many, it would mean a higher income tax bill, especially over time.
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