The Center on Budget and Policy Priorities examined the Joint Committee on Taxation (JCT) report on the plan’s distributional effects (who wins). It adjusted the JCT’s numbers to account for the repeal of the estate tax:
Households with annual incomes over $1 million would see their after-tax incomes increase by 3.2 percent, 16 times the percentage increase for any income group in the bottom half of the income distribution. . . . (The disparity in average tax cuts measured in dollars would be even larger.)About 45 percent of cost of the bill’s tax cuts would go to households with incomes above $500,000 (fewer than 1 percent of filers). About 38 percent of the bill’s cost would go to tax cuts for households with incomes over $1 million (about 3 out of every 1,000 filers).
There are also some losers, many of whom don’t seem to fit the definition of “rich”: “Specifically, the JCT estimates of the individual and business provisions show tax increases for filers with incomes between $20,000 and $40,000 from 2023 to 2025; filers with incomes between $20,000 and $30,000 in 2027; and filers with incomes between $200,000 and $1 million in 2023.” These are averages and therefore do not account for some disparities, such as those hit by the repeal of the state and local tax deduction or elimination of the deduction for medical expenses in excess of 10 percent of income (e.g. people with severe disabilities, nursing-home residents at the end of life).
What’s already clear from the JCT tables, however, is that the tax increases that some filers face under the plan would pay for tax cuts that would be, on net, extremely skewed to the very wealthy and profitable corporations. And that’s before accounting for how these tax cuts would swell federal budget deficits. By increasing deficits, tax cuts would create pressure to cut programs that primarily benefit low- and middle-income families, making their true distributional impacts even more skewed than the JCT tables show.
In other words, non-rich people can get smacked twice — once by certain tax plan provisions and second by the cuts in Medicaid and Medicare needed to pay for the cuts that primarily benefit corporations and the rich.
In another study, the Institute on Taxation and Economic Policy finds:
The middle 20 percent of income-earners in America, the group that is quite literally the “middle-class,” would receive 10 percent of the benefits in the U.S. in 2018 and just 8 percent of the benefits in 2027. In other words, in 2027 the middle fifth of Americans would receive only one sixth of the benefits received by the richest one percent of Americans. …The richest one percent of Americans would enjoy an average tax cut of $48,580 in 2018, and this average tax cut would rise to $64,720 in 2027. The middle fifth of income-earners would receive an average tax cut of $750 in 2018, which would fall to $460 in 2027. . . . [T]he richest one percent receive an average tax cut equal to about two and a half percent of their income in 2018 and 2027. The middle fifth of income-earners receive a break equal to 1.4 percent of their income in 2018, falling to just 0.6 percent of their income in 2027.
It does not have to come out this way, despite what Treasury Secretary Steven Mnuchin says. If $1 trillion of the $1.5 trillion cost of the plan is attributable to corporate tax breaks and $200 billion goes out the door for rich heirs, there isn’t a lot of room for cutting taxes for middle- and lower-income Americans. If, instead, corporate tax reform was revenue-neutral, there would be $1 trillion in breaks (assuming added debt of $1.5 trillion) to hand out. Candidly, however, using income tax cuts to help middle- and lower-class Americans is incredibly ineffective. That, in part, is due to the large percentage of filers who pay no income tax and to the code’s current progressivity. If you really wanted to benefit the non-rich, you increase the earned income tax credit and/or refund part or all of employees’ Social Security tax for those below a certain income threshold.
You see, the ordinary American pays more in Social Security tax than in income tax. The Tax Policy Center found in 2016 that “44 percent of households will pay no federal income tax this year. … But 60 percent of those households have members who work and will thus pay Social Security and Medicare payroll taxes.” Put differently, “Overall, almost two-thirds of households will pay more payroll tax than income tax … while only one in five will pay more income tax.”
In sum, the argument that the GOP tax bill is all about the middle class is nonsense. You could construct tax reform that benefited middle- and lower-income Americans, keeping taxes on the rich and corporations even. You could forget about individual income tax cuts altogether, instead looking to cut payroll taxes. Voters should ask GOP lawmakers why instead they chose the one method that benefits the rich and corporations. The honest answer would be that they wanted to benefit the rich and corporations.