Many readers have asked about “Cindy,” a proverbial single mother that House Republicans have highlighted to make the case that the tax plan moving through Congress at a fast clip will help ordinary Americans, despite a bevy of provisions that benefit corporations and the super-wealthy.
So let’s explore her story.
Cindy was created by the majority staff of the House Ways and Means Committee. She “has a fulfilling job and a promising career path as an assistant manager at a local restaurant,” according to the committee’s narrative. “She works hard to support herself and her 11-year-old daughter, but most days Cindy feels like she’s barely getting by much less getting ahead.”
According to Payscale.com, the median salary for an assistant restaurant manager is $36,328, but it can be as low as $26,000, so $30,000 is a reasonable figure.
Under the current tax law, Cindy does not pay much in federal income taxes. After taking a standard deduction of $9,550 and two personal or dependent exemptions worth $4,150 each, her taxable income is $12,150, which means she is in the 10 percent tax rate. So before credits, her tax bill is $1,215.
But Cindy also can take a $1,000 child tax credit and qualifies for an earned income tax credit of $1,662. So that means she currently gets a tax refund of $1,447.
Of course, Cindy also has to pay $1,860 in Social Security payroll taxes and $435 in Medicare payroll taxes. For many people in this income range, payroll taxes are more of a burden than income taxes. (The Social Security tax is no longer paid once a person’s income exceeds $127,000.)
Under the House tax bill, personal and dependent exemptions are eliminated. But the standard deduction for a head of household is boosted to $18,300. Cindy would have a taxable income of $11,700, which is taxed at a new 12 percent rate.
That actually leaves her with a higher tax bill of $1,404, before credits.
But the House tax bill would boost the child tax credit to $1,600, and there would also be an additional tax credit of $300 for the mother. Those credits, combined with the $1,662 earned income tax credit, would bring her a tax refund of $2,158 — or $711 higher than her current tax refund.
That works out to almost $2 a day, or an after-tax boost in income of 2.4 percent. More charitably, you can say her tax refund is boosted by 50 percent.
The key to the increase is the boost in the child tax credit by $600. Because of the way the tax bill is structured, Cindy makes enough money that she does not run into a problem that children in one of three working families will face — not making enough to fully qualify for the increase in the credit. The left-leaning Center on Budget and Policy Priorities calculates that families who miss out on the increase have an average income of $22,000.
But note that Ryan’s tweet says she gets this $700 tax refund “every year under our tax bill.” That’s not correct for three reasons.
First of all, House Republicans adopted a different inflation rate for calculating changes in tax rates, which over time will increase taxes (and thus eat away tax refunds). Second, the personal/dependent exemptions, eliminated under the bill, currently increase over time because they are inflation-adjusted but the replacement credits are not, so the value of the credits dilute over time.
Finally, in order to fit a tax wish list into a budget box that boosts the deficit by $1.5 trillion over 10 years, Republicans decided that certain tax items would expire before the 10-year window closes.
The $300 tax credit actually expires relatively quickly — at the end of 2022. So by 2027, Cindy’s $700 extra in taxes dwindles to about $200.
(In theory, her daughter also would no longer qualify for the $1,600 tax credit in 2023, once she turns 17.)
Ryan’s office says this is the wrong way to look at the bill because Congress will surely act to extend the expiring tax breaks. “This is a one-year, not 10-year number,” said AshLee Strong, a Ryan spokeswoman. “We expect the tax credit to continue. She will see a significant tax benefit each year.”
This is a prime example of Congress trying to have its cake and eat it too. We are supposed to ignore the fact that the provisions will expire — and at the same time describe the bill as a $1.5 trillion tax cut.
The nonpartisan Committee for a Responsible Budget estimates that if the House bill did not let individual tax breaks expire at various points throughout the decade, then it would add $225 billion to the revenue loss of the bill. All told, various budget gimmicks disguise the fact that the revenue loss is actually $1.9 trillion. The Senate Finance Committee bill, while structured differently, also has gimmicks that hide the fact that it reduces revenue by $1.9 trillion.
Adding in the additional interest on debt that must be sold to finance the tax proposals, the “real” cost of the tax plans is $2.2 trillion, according to the CRFB.
Trump administration officials and lawmakers have claimed that the tax bill will actually pay for itself through greater economic growth. But Congress is rushing the bill so quickly that the Congressional Budget Office has said it does not have enough time to do a full economic analysis that would allow for calculations of the feedback effect.
The nonpartisan Tax Policy Center on Nov. 20 released an analysis that concluded the feedback would be relatively modest — only reducing the revenue loss by $169 billion from 2018 to 2027. That suggests about $2 trillion in additional deficits over the next decade if the full tax bill were implemented — which if true would put pressure on Congress to address the problem in some way. One route would be to let the provisions expire rather than add to the deficit.
While the congressional effort to repeal the Affordable Care Act appears dead, we were curious to see how Cindy would have fared under the House replacement plan, since originally Republicans said they would replace the health-care law and then tackle taxes.
According to a calculator created by the Kaiser Family Foundation, the impact on Cindy would have varied greatly depending on where she lived. In Rock County, Wis., (where Ryan lives) she would have her health insurance costs decline by about $600 in 2020. But in Santa Cruz County in California, her health insurance costs would have climbed more than $3,500. And in Duval County in Florida, there would have been virtually no difference. (We assumed cost-sharing assistance was eliminated and that none of the states took advantage of provisions that would have allowed states to waive certain consumer protections. We also assumed Cindy was 40 years old.)
In other words, in some areas of the country, any tax savings would have been wiped out by the health bill.
The Pinocchio Test
The touching tale of Cindy only tells half the story. At the beginning, she likely would be happy to find an additional $700 in her tax refund. But as the tax bill is written, that savings is frittered away over time. Republican lawmakers insist that expiring provisions will not expire; the tweet even says Cindy will get $700 “each year under our tax bill.” But then they should be forthright and explain that they have not figured out how to fund the full tax cuts either. There are no guarantees in tax policy, and lawmakers should not pretend that there are.
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