off the charts

The Ryan Budget’s Skewed Tax Cuts

We’ve shown that the $5 trillion in non-defense program cuts in House Budget Committee Chairman Paul Ryan’s new budget are heavily weighted toward low-income programs.  At the same time, based on the latest estimates from the Urban-Brookings Tax Policy Center (TPC), we now see that the tax cuts that he specified in his budget would be heavily weighted to high-income households. These tax cuts, which would cost $5.7 trillion if they met Chairman Ryan’s goals (including cutting the top rate from 39.6 to 25 percent), would give 55 percent of their benefits to the top 1 percent of U.S. households based on income, TPC reports. To be sure, Chairman Ryan says his budget would fully offset the cost of his proposed tax cuts by curbing tax expenditures (exclusions, deductions, and other preferences).  But he has offered no specific proposals to do so.
  • We estimate, based on new TPC analysis, that the individual income tax cuts specified in the Ryan budget (assuming they met their goals, including the 25 percent top rate) would give an average $330,000 a piece to households with annual incomes above $1 million — compared to an average $1,700 tax cut for middle-class households with incomes between $50,000 and $75,000 (see first chart).
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  • The tax cuts would raise after-tax incomes by 15.4 percent among millionaire households but by just 1.8 percent for households with incomes between $50,000 and $75,000 (see second chart).
As our paper explains, TPC analyses indicate that if policymakers coupled the Ryan tax-cut goals, including the 25 percent top rate, with a package of sweeping (and politically implausible) cuts in tax expenditures for households with incomes above $200,000, these households would still receive a large net tax cut.  They would gain substantially more, on average, from the Ryan plan’s desired individual income tax cuts than they would lose from even an aggressive package of tax expenditure changes. As a result, to fully finance the net tax cuts for people with incomes over $200,000, taxes on people below $200,000 would very likely have to rise; the amount that people below $200,000 lost from the tax-expenditure curbs would have to exceed the relatively modest amounts they would gain from the tax-rate reductions.  Alternatively, a package could be constructed so that no group’s taxes went up — but then the Ryan tax changes would add mightily to the deficit.