The Washington PostDemocracy Dies in Darkness

GOP bill would hike taxes on 31 percent of middle-class Americans by 2027, study finds

Sen. Ted Cruz (R-Tex.) said on Nov. 7 that it's a "mistake" for the House GOP tax plan to result in a tax increase in certain states. (Video: Reuters)

Republican Senator John Kennedy of Louisiana took out his wallet and held it up Tuesday. “This is what tax reform is about!” he proclaimed.

But a growing number of nonpartisan analyses show that some middle-class Americans would not get more money in their pockets under the GOP plan. Instead, they would face higher tax bills, a potential pitfall in selling this plan to the public and to enough lawmakers for it to pass.

Nine percent of middle-class tax filers (those earning between $48,600 and $86,100) would pay more in taxes next year, according to an analysis by the nonpartisan Tax Policy Center released Wednesday. By 2027, 31 percent of middle-class filers would see tax hikes, the center said.

TPC had to retract its first analysis of the bill Monday after discovering an error in its modeling. The organization undercounted the benefits to moderate income Americans. The revised analysis found that most Americans (76 percent) would get a tax cut next year, with middle class families receiving, on average, a cut of $800 (the prior analysis had said $700).

The corrected report released Wednesday still shows that millionaires and billionaires are the biggest winners, as well as that some in the middle and working classes would be hurt by the bill. By 2027, the top 1 percent would receive nearly half of the benefits.

“The largest cuts, in dollars and as a percentage of after-tax income, would accrue to higher-income households,” TPC said.

TPC's findings are very similar to what the Joint Committee on Taxation, Congress' official nonpartisan estimators, reported earlier this week. According to JCT, 8 percent of filers would face a tax increase of $100 or more in 2019 and 16.5 percent would pay over $100 more in taxes in 2027. A sizable number of Americans earning $20,000 to $100,000 would be hit with higher tax bills.

President Trump and congressional Republicans have consistently promised that the middle class will get tax relief under their bill. The JCT findings are troubling some Republican lawmakers, who are pushing for changes to help working class families in the Senate version of the tax legislation, which is set to come out soon.

“Tax reform needs to cut taxes for everybody,” Sen. Ted Cruz (R-Tex.) said Tuesday. “The business side is terrific, but there are some taxpayers who are losing exemptions, particularly in some high tax states like New York or California, that could conceivably be paying higher taxes. I think that is a mistake.”

The GOP House bill introduces a new Family Flexibility Credit of $300 for every tax filer (and $600 for a married couple filing jointly), but this credit goes away after 2022.

“Overall, the tax cut would be smaller in 2027 because of the expiration of certain provisions in 2023 (including the new $300 family credit and 100 percent bonus depreciation), the effect of indexing tax parameters to a slower-growing measure of inflation, and the substitution of a child credit that is not indexed for inflation for personal exemptions that are indexed,” TPC wrote in its report.

Republicans have said privately that they expect the tax cut will be extended down the road. Congress almost always keep in place tax cuts and credits that help the working poor and middle class. But it's still a gamble since it is not part of the House GOP bill to extend the credit beyond 2022.

House Republicans have also stressed that these estimates from JCT and TPC don't take into account how much more the economy will grow after the tax plan goes into effect. JCT “offers an incomplete picture of tax reform,” the House Ways and Means Committee wrote in a statement over the weekend.

The Tax Foundation, a right-of-center think tank, also analyzed how different families fare under the House GOP bill, finding that all income groups and people in each state would see a big jump.

“The Tax Cuts and Jobs Act would increase the after-tax incomes of taxpayers in every taxpayer group in 2018,” the Tax Foundation said in its report.

The benefits get even bigger by 2027 once the Tax Foundation took economic benefits into consideration. But its analysis also found that the top 1 percent would get the biggest income boost from the bill. Next year, the top 1 percent would see a 7.5 percent income increase compared to 2.2 percent for the middle class.