President Trump promised to cut taxes for the middle class, but some would end up paying more under the “Tax Cuts and Jobs Act,” according to a report released Friday night by Congress's Joint Committee on Taxation, the official scorekeepers tasked with determining how much any tax legislation would add to the debt and how it would impact the poor, middle class and wealthy.
The Trump administration says it has a “bright line test” that the president won't support any tax bill that does not give the middle class relief on their taxes. The “Tax Cuts And Jobs Act” that House Republicans released Thursday appears to violate that vow, at least for some middle-class taxpayers.
The JCT found that the GOP bill would add nearly $1.5 trillion to the debt over the next decade and that, on average, families earning between $20,000 and $40,000 a year and between $200,000 to $500,000 would pay more in individual income taxes in 2023 and beyond.
JCT does not explain why these families see an increase, but it is likely that it's in part because some tax credits aimed at helping the middle class expire in 2023, including the Family Flexibility Credit. Republicans are currently debating whether to extend this credit, but that would require revenue from somewhere else. Some are banking on Congress not allowing the credit to expire when the time comes. Upper middle-class families are also losing popular tax breaks like the state and local income tax (SALT) deduction, which may explain why they get higher tax bills.
It's possible that other families will also see their tax bills jump under the plan. JCT only reports what happens to the average taxpayer in each income bracket. Experts across the political spectrum, including the Tax Policy Center, plan to release more detailed reports in the coming days showing what happens to large and small families, rich and poor, and those that claim big medical deductions under the GOP plan.
House Republicans argue that the JCT analysis undercounts the benefits to the middle class.
“The purpose of tax reform isn’t just to lower taxes for struggling families – it’s also to make our economy boom again,” said the Republican-led House Ways and Means Committee in a statement Saturday. “Unfortunately, JCT’s analysis omits the economic effects of tax reform in their distributional tables. This means that the JCT analysis misses the bigger picture.”
But Democratic tax experts say most of the benefits go to the richest Americans.
“JCT’s estimates show that this bill is heavily tilted toward the wealthy,” says Lily Batchelder, a tax law professor at New York University and former member of President Obama's National Economic Council.
Batchhelder used the JCT analysis to look at who gets the biggest income boost from the GOP plan. She found that millionaires would see their after-tax incomes rise by 2.2 percent after a decade, and that is without factoring in how wealthy families benefit for the elimination of the estate tax. Families earning $50,000 to $70,000 — the middle of the middle — would see only a 0.6 percent rise, and families earning $20,000 to $40,000 get no benefit.
JCT distributional estimates: Millionaires get 2.2% boost in income without even counting estate tax. Middle class gets far less or nothing. pic.twitter.com/hrWqJOrh32— Lily Batchelder (@lilybatch) November 3, 2017
Trump and congressional Republicans argue that business tax cuts would also help the middle class because companies will create more jobs and pay workers more.
The Tax Foundation, a right-leaning think tank, found that the GOP bill would result in almost a million more full-time jobs and that wages would rise for many workers.
“The larger economy and higher wages are due chiefly to the significantly lower cost of capital under the proposal, which is mainly due to the lower corporate income tax rate,” the Tax Foundation wrote in a report Friday.
JCT also took a close look at what happens to people's incomes after taking into account the business tax cuts. JCT found that more Americans would be better off, but some families, especially in the $20,000 to $40,000 range would still see tax increases after 2023. JCT assumes about a quarter of the tax savings that businesses receive would end up in the pockets of workers because of higher wages. Wealthier families also benefit from higher stock dividends and changes to small businesses taxes.
There are winners and losers in any tax bill. In general, large families and those that currently take a lot of deductions for medical expenses or state and local taxes are hurt the most by the changes in the GOP plan. Some are already calling it a hit to “blue states” since a lot more people in states like California, Connecticut, New York and New Jersey earn upper middle-class incomes and benefit heavily from the state and local tax deduction.
House Speaker Paul D. Ryan (R-Wis.) has emphasized that a true middle-class family — a family of four earning $59,000 a year — would pay $1,182 less in taxes in 2018 than they would this year. But David Kamin a tax professor at New York University, modeled what would happen to that family over the next decade and found that even that model family would end up paying more in tax by 2024.