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The search for the best middle-class tax cut

The headquarters of the Internal Revenue Service (IRS) in Washington. (AP Photo/J. David Ake, File)
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Say you want to help struggling middle-class families by cutting their taxes. Say you want to figure out an actually helpful plan to do that, and not just something that sounds good on the campaign trail. Congratulations: You already, in some ways, show more interest in smart public policy than a lot of presidential candidates did this year. And apologies: For a city full of wonks, Washington offers surprisingly few options to game out how policy proposals might actually, you know, work.

You could sweet-talk a staffer at the congressional Joint Economic Committee into assessing your plan, or ply an economist at a think tank. Probably you won't, though, which is why the American Enterprise Institute dreamed up the Open Source Policy Center. It's an online collaboration of researchers from across the country and ideological spectrum, housed at a conservative think tank in D.C., which incorporates models of the U.S. economy drawn from detailed tax data. AEI is christening it Thursday evening at its offices downtown.

The Center's goal is to let anyone project the effects of a policy change - on the economy at large, and on individual Americans.

To break it in, one of AEI's economists, Alex Brill, used the Center's modeling tools to probe our question about middle-class tax relief. He compared several proposals, taken from the current presidential campaign, to see which ones helped the most middle-class taxpayers. He also compared the proposals' projected effects on the economy.

He found just what you'd hope to, if you ask a simple question to a sophisticated modeling tool: a complicated answer.

Brill examined three methods of reducing taxes for middle-income filers, each of which would amount to about a $95 billion tax cut in its first year. One would double the standard deduction that Americans are allowed to claim on their income taxes. One would expand the 10 percent tax bracket to allow more income to be taxed at that low rate, and one would expand the 15 percent tax bracket for the same reason. (Under our progressive income tax system, your income - minus deductions - is taxed at 10 percent for the first chunk of money you earn, and then the next chunk is taxed at 15 percent, and so on, up to a top rate of nearly 40 percent for the highest-earning filers.)

Using the open-source models, Brill found that doubling the standard deduction and expanding the 10 percent rate would each result in a tax cut for about 75 million middle-class Americans. Expanding the 15 percent rate would give about 30 million of them a tax cut. That's a big gap.

Expanding the 15 percent bracket, though, would deliver more than twice the added economic growth of the other options, Brill's models projected, by incentivizing far more additional work and investment in the economy.

"We're seeing the most powerful growth effects for a policy that affects a subset of the middle class," Brill said in an interview. "So if you want to promise the largest number of people tax relief, there's a trade-off with promising the largest number of jobs being created."

Many conservatives won't find that idea surprising - it's the reason so many conservative economists continue to push for cuts to the highest marginal income tax rate, because their models suggest that's how you spur the most growth. Other economists, including many liberals, say it's more important to deliver help to more workers - because growth, particularly in recent decades, has not translated into robust income gains for the middle class.

The open-source models have the potential to elevate those debates, and to spread them beyond Washington. If anyone can score a tax plan, why let the think tanks have all the fun?