The White House on Thursday sought to defend the central premise of its tax overhaul — that it would represent a huge benefit to the middle class — amid growing doubts from tax policy experts, Democrats and even some prominent conservatives that it would accomplish that goal.
Critics said that glaring omissions from the plan released Wednesday make it hard to tell whether middle-class families would fare better or worse, but they predicted that once the blanks were filled in, the effects were likely to be a modest cut with some winners and losers. People who itemize deductions on their tax returns and live in high-tax states, for example, may lose a valuable deduction in their state and local taxes.
“There is simply no chance this proposal is going to deliver a historically large tax cut for middle-income people. It would have to be changed radically for that to happen,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center. “And similarly, when they have said at times this would not be a tax cut for high-income people, they cannot deliver on that either. This is going to be a very, very big tax cut for the highest income people.”
White House economic adviser Gary Cohn said on ABC’s “Good Morning America” that the average family of four making $55,000 would see its taxes decrease between $650 and $1,000. He acknowledged that some middle-class families might see tax increases.
“There’s an exception to every rule,” Cohn said on the morning show.
The tax plan has provisions targeted at middle-class taxpayers. It doubles the standard deduction, increasing the amount of money people can earn tax-free up to $24,000 for a married couple. But that comes paired with the loss of the $4,050 per person exemption currently in the tax code, which could mean that large families could end up worse off.
Whether they do would depend in part on how much bigger the existing child tax credits get. The plan says it would “significantly increase” those credits by an unspecified amount.
Immediately after the release of the tax overhaul plan by the White House and leading Republicans on Wednesday, Republican Sens. Marco Rubio (Fla.) and Mike Lee (Utah) seized on the question of how much the child tax credit, currently valued at up to $1,000 per child, would grow.
“Given the fundamental reforms of the framework, the child credit must be at least doubled in order to ensure working families get real tax relief,” Rubio and Lee said.
Lily Batchelder, a professor of law and public policy at New York University School of Law, said that if the increase in the child tax credit is relatively small, millions of middle-class people who do not itemize deductions on their taxes could see an increase in their taxes under the plan. That’s because families will lose the personal exemption. A family of four would receive a greater benefit from today’s standard deduction and personal exemptions than the flat standard deduction under the GOP plan.
“The size of the child tax credit increase will affect whether a lot of people with kids in the middle class will face a small tax cut or a tax increase,” Batchelder said.
“I think, far and away, the biggest problem is you’re potentially raising taxes on a lot of middle-class families — unless you fill in the details the right way,” said Ramesh Ponnuru, a senior editor at National Review. “If it raises taxes on the middle class, it’s political poison.”
On net, the changes in the plan might end up being a wash or slight cut for most middle-class families, several economists said.
Only about 30 percent of families itemize deductions, so the effect of losing the state and local tax deduction will be far from universal. Two of the most popular deductions are explicitly being retained — for mortgage interest payments and charitable contributions.
“I would imagine most middle-class people would not be affected much. . . . I wouldn’t imagine anyone is getting a giant hike in their tax rate or a giant cut,” said Aparna Mathur, a resident scholar in economic policy studies at the American Enterprise Institute.
The very wealthy have had clear cuts spelled out, with an end to the estate tax and a cut to the top tax rate — although Congress will have the ability to create a higher rate.
The larger middle-class benefit projected by some conservative economists is not the tax cuts themselves, but the effect that changes to business taxes could have on economic growth.
“They’ll get a tax cut. There’s no question about it,” said Douglas Holtz-Eakin, president of the American Action Forum. “But the more important thing is to pay smaller taxes out of a bigger paycheck. The most important thing for the middle class is to have an economy that performs better.”
There will be squabbles about how to factor in any growth from the economy in determining the long-term economic effects of the plan, but the larger middle-class tax burden could lie in the future.
“We are running a debt of $20 trillion-plus,” said G. William Hoagland, a senior vice president at the Bipartisan Policy Center and a longtime Republican budget aide. “We have to remember that debt is a tax on future generations, and so we talk about the immediate benefits, but also we have to recognize — if this added to the debt significantly, we are simply transferring a tax to future generations.”