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JCT: Senate Tax Bill Benefits Well-Off the Most, and Millions of Low- and Middle-Income People Face Tax Increases

November 13, 2017 at 2:30 PM

The tax bill that the Senate Finance Committee will consider this week provides the largest benefits to those with the highest incomes, the Joint Committee on Taxation (JCT) confirms with new estimates. While committee Republicans claim that the JCT estimates show that the middle class will be the “biggest winners,” they in fact show just the opposite — the biggest winners are at the top, and many in the middle and below will lose.

Specifically, the bill boosts the average after-tax income of households with more than $1 million of income by about twice as much as most low- and middle-income groups, giving tax cuts to millionaires that average more than $48,000 apiece in 2027.  At the same time, it raises taxes on 19.4 million households with incomes below $200,000 and leaves another 53.7 million households with virtually no tax change — which means that about 40 percent of households below $200,000 would see either no meaningful tax cut or a tax increase.

Thus, while adding $1.5 trillion to budget deficits over ten years and giving large tax cuts to millionaires, the bill raises taxes on millions of households below $200,000 in income and does little if anything for millions more. 

After adjusting the JCT estimates to include the effects of the bill’s estate tax cuts (using the methodology described here), we estimate that, in 2027, the bill would:

  • Boost the after-tax incomes of households making more than $1 million by twice as much, in percentage terms, as those with incomes below $50,000.  Millionaires would see their incomes rise by 1.7 percent (about $48,000) on average, while those making between $30,000 and $40,000 would see their incomes rise by just 0.6 percent ($267). (See Table 1.)
  • Raise millionaires’ incomes nearly twice as much in percentage terms as households in the middle.
TABLE 1
Senate Finance Committee Tax Bill Distribution, 2027, Including Estate Tax Cuts
Income Group Percentage Change in after-tax income (including estates) Average dollar tax change
Below $10K 0.4% -$23
$10-20K 0.4% -$90
$20-30K 0.4% -$144
$30-40K 0.6% -$267
$40-50K 0.9% -$482
$50-75K 1.0% -$754
$75-100K 1.0% -$994
$100-200K 1.0% -$1,568
$200-500K 1.5% -$4,376
$500K-$1 million 2.5% -$15,820
More than $1 million 1.7% -$48,678

Source: CBPP analysis of Joint Committee on Taxation Table JCX-53-17; Tax Policy Center Table T17-0061.

These estimates focus on 2027, the year that reflects the distribution of the tax changes once the plan is fully in effect. As noted, we adjust the JCT estimates to add the bill’s doubling of the tax exemption under the estate tax — to $22 million per couple ($11 million per person), which would benefit only the heirs of the nation’s largest 0.2 percent of estates.  In its standard approach, JCT does not incorporate estate tax changes in its distribution estimates, although the Tax Policy Center (TPC) and career experts at the Treasury Department’s Office of Tax Analysis do.

We focus on percentage changes in after-tax income, the measure that most tax experts agree is the most informative measure of how tax proposals affect those along the income scale.  That’s because what matters to people’s standards of living is how their after-tax (“disposable”) income changes, and looking at changes in percentage terms allows for fair comparisons between groups of vastly different average incomes. Senate Republicans have focused on the “share of taxes paid” and use it to assert that middle class households are “big winners” under the bill because they get “larger tax relief, as measured by percent reductions in federal taxes.” But this metric is highly misleading because it bears little relevance to whether people are better or worse off under the bill, as New York University Professor David Kamin has explained in detail.

Averages for each income group obscure the fact that within each group, households face tax cuts and tax increases — depending on their family structure, sources of income, and deductions.  Originally, Senate Majority Leader Mitch McConnell promised that “nobody in the middle class is going to get a tax increase” and House Speaker Paul Ryan promised that “everybody gets a tax cut,” but both GOP leaders have reneged on those pledges and more recently said that they’re only making these guarantees for different income groups on average.

Indeed, the JCT estimates show that the Senate plan, like the tax bill that the House Ways and Means Committee passed last week, would violate their original pledges: many millions of low- and moderate-income filers would face tax increases or receive no substantial tax benefit from the Senate bill (see Table 2).  The Senate plan also would violate Treasury Secretary Steven Mnuchin’s new promise of yesterday that “for most people — and again, it may not be 100 percent, but by far the majority – both the House and Senate version provide middle-income tax relief.”

Instead, in 2027:

  • 19.4 million households with incomes below $200,000 face tax increases, including 13.3 million facing tax increases of more than $500 apiece.
  • 53.7 million households with incomes below $200,000 face tax changes of less than $100 apiece.

In other words, 73.2 million households with incomes under $200,000 would either lose or gain little from the Senate bill – or roughly 40 percent of these households. At lower income levels, an even larger share of households are excluded from the bill’s tax-cut benefits: 46 percent of households with income below $100,000, and 50 percent of those with incomes below $75,000, are left out or face a tax increase.

TABLE 2
Number of Households Facing Tax Increases, Little or no Change, and Tax Cuts Under Senate Finance Republican Tax Bill, 2027, Millions of Households
  Tax increasea Minimal tax changeb Tax cuta Total number of households
Income group All households Households facing a tax increase greater than $500 All households Households facing a tax cut greater than $500
Below $10K 0.09 0.04 17.62 1.27 0.08 18.99
$10-20K 0.94 0.31 10.33 9.13 0.29 20.38
$20-30K 1.08 0.54 10.98 10.44 1.01 22.50
$30-40K 1.01 0.47 6.29 8.96 3.46 16.26
$40-50K 1.25 0.66 3.42 9.71 5.95 14.37
$50-75K 3.55 2.21 3.41 21.66 16.39 28.65
$75-100K 3.55 2.59 0.9 15.05 12.78 19.49
$100-200K 7.97 6.53 0.8 24.53 22.8 33.33
$200-500K 2.68 2.41 0.16 7.09 6.75 9.92
$500K-$1 million 0.19 0.18 0.00 1.02 1.01 1.22
More than $1 million 0.14 0.14 0.00 0.49 0.49 0.63
Total, All Taxpayers 22.47 16.16 53.86 109.21 70.95 185.73
 
Addendum:            
Below $100K 11.47 6.81 52.95 76.22 39.96 140.63
Below $200K 19.44 13.35 53.75 100.75 62.76 173.96

a Tax increase or cut is more than $100.

b Tax change is less than $100.

Source: Joint Committee on Taxation Table #D-17-49 shows the percentage of filers at each income level facing each of these specified tax changes. JCX-53-17 shows the number of households at each income level, allowing us to calculate the number of households affected by the specified tax changes. These estimates do not incorporate the effect of estate tax cuts. Totals may not add due to rounding.

Finally, even these figures are incomplete — and too rosy for most Americans. As we’ve explained, when policymakers eventually offset the costs of these deficit-financed tax cuts, the same low- and middle-income families that see little benefit from this bill upfront will likely bear much of the burden in the form of budget cuts. That is, these families would likely lose more in health care, education, job training, and other services than they gain in tax cuts, while high-income households would likely remain large net winners.

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