off the charts
BEYOND THE NUMBERS
BEYOND THE NUMBERS
House Budget Chair’s Priority: Tax Cuts for Well-to-Do
March 18, 2015 at 12:30 PM
While imposing harsh budget cuts on the most vulnerable Americans, House Budget Committee Chairman Tom Price’s budget plan also appears to reflect a continuing drive to cut taxes for the nation’s highest-income people. Unlike past years’ House budgets, this plan doesn’t specify a top tax-rate target of 25 percent. It claims, more generally, that it “substantially lowers tax rates for individuals.” Still, other details of the plan clearly indicate tax priorities that favor high-income households:
- Repealing all health reform revenue changes. The Price plan would eliminate all health reform-related taxes and tax credits. A significant share of the revenues that health reform will raise over the next decade come from its 3.8 percent Medicare surtax on the unearned income of high-income filers and its 0.9 percent Medicare surtax on high wage and salary income. Repealing these surtaxes would be highly regressive; only filers with incomes over $250,000 for a married couple (and over $200,000 for single filers) pay them. Moreover, the 3.8 percent surtax applies only to unearned income such as capital gains and dividends, which is highly concentrated at the top. In 2012, the richest 400 filers received about $1 of every $9 of such income, according to IRS data.
- Eliminating the Alternative Minimum Tax (AMT). The plan would eliminate the AMT, which is designed to ensure that higher-income people pay at least some base level of tax.
We estimate that repealing health reform and the AMT would likely reduce revenues by more than $1 trillion over ten years, based on Tax Policy Center (TPC) and Congressional Budget Office estimates. While it’s intended to be revenue neutral compared to current law, Chairman Price’s budget proposes no specific offsets to pay for these provisions (or for the tax-rate cuts it calls for in general terms, which tend to be very costly). Repealing the AMT and health reform’s high-income provisions would provide a windfall at the top while doing little for middle-class households. Based on a TPC distributional analysis of the AMT and of health reform’s high-income provisions in 2015, we estimate that repealing these provisions would:
- Cut taxes by roughly $50,000 on average for people with incomes exceeding $1 million a year, but by less than $10 on average for those making $50,000 to $75,000, and by essentially nothing on average for those earning less than $50,000.
- Raise after-tax incomes by 2.5 percent on average for households with incomes exceeding $1 million a year, but by less than 0.01 percent for those with incomes between $50,000 and $75,000.
Accounting for eliminating health reform’s premium tax credits and other revenue provisions wouldn’t alter the conclusion: the specific tax proposals identified in the Price plan would direct large tax cuts to high-income earners and little to low- and middle-income filers. While the tax component of Chairman Price’s plan is less detailed than the tax proposals in past years’ House budgets, the information it provides strongly indicates that the plan would juxtapose deep spending cuts primarily hitting low- and middle-income people with tax changes likely to heavily favor people at the top of the income scale.