Fundamentally Flawed 2017 Tax Law Largely Leaves Low- and Moderate-Income Americans Behind
Testimony of Chye-Ching Huang, Director of Federal Fiscal Policy, Before the House Budget Committee
End Notes
[1] The law’s official name is “Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” It was originally titled the “Tax Cuts and Jobs Act” but that name was stricken from the bill. This testimony draws substantially on the following report: Chuck Marr, Brendan Duke, and Chye-Ching Huang, “New Tax Law Is Fundamentally Flawed and Will Require Basic Restructuring,” CBPP, updated August 14, 2018, https://www.cbpp.org/research/federal-tax/new-tax-law-is-fundamentally-flawed-and-will-require-basic-restructuring.
[2] TPC Table T17-0314. 2025 is when the law will be fully phased in and is before many provisions in it are scheduled to expire. The distribution is roughly similar in Tax Policy Center tables for 2018. The law is even more tilted to the top in 2027, when most of the individual provisions expire.
[3] TPC estimates that in 2025, the top 1 percent will have after-tax incomes exceeding $837,800, and the bottom 60% will have incomes below $91,700.
[4] Roderick Taylor, “ITEP-Prosperity Now: 2017 Tax Law Gives White Households in Top 1% More Than All Races in Bottom 60%,” CBPP, October 11, 2018, https://www.cbpp.org/blog/itep-prosperity-now-2017-tax-law-gives-white-households-in-top-1-more-than-all-races-in-bottom.
[5] Chye-Ching Huang and Brandon DeBot, “Corporate Tax Cuts Skew to Shareholders and CEOs, not Workers as Administration Claims,” CBPP, August 16, 2017, https://www.cbpp.org/research/federal-tax/corporate-tax-cuts-skew-to-shareholders-and-ceos-not-workers-as-administration.
[6] See Chuck Marr, “JCT Highlights Pass-Through Deduction’s Tilt Toward the Top,” CBPP, April 24, 2018, https://www.cbpp.org/blog/jct-highlights-pass-through-deductions-tilt-toward-the-top.
[7] Chye-Ching Huang, “Tax Cuts Must Be Judged by Their Effect on Typical Households,” CBPP, April 25, 2018, https://www.cbpp.org/blog/tax-cuts-must-be-judged-by-their-effect-on-typical-households; “Large Job Growth Unlikely to Follow Tax Cuts for the Rich and Corporations,” CBPP, October 10, 2017, https://www.cbpp.org/research/federal-tax/large-job-growth-unlikely-to-follow-tax-cuts-for-the-rich-and-corporations.
[8] For more, see: Paul Van de Water, “2017 Tax Law Heightens Need for More Revenues,” CBPP, November 15, 2018, https://www.cbpp.org/research/federal-tax/2017-tax-law-heightens-need-for-more-revenues.
[9] Dylan Matthews, “Obama’s chief economist: Trump’s economic projections are ‘the most absurd I’ve ever seen,’” Vox, February 19, 2018, https://www.vox.com/policy-and-politics/2018/2/19/17012288/trump-budget-proposal-obama-chief-economist-jason-furman-interview.
[10] Theodoric Meyer, “It’s a giant present to the tax lobbying community: K street lobbyists are banking on years of paydays from the tax overhaul,” Politico, January 2, 2018, https://www.politico.com/story/2018/01/02/tax-overhaul-paydays-for-k-street-261668.
[11] Daniel Shaviro, “Apparently income isn’t just income any more,” Start Making Sense, December 16, 2017, http://danshaviro.blogspot.com/2017/12/apparently-income-isnt-just-income-any.html.
[12] Samantha Jacoby, “Pass-Through Deduction Regulations Reflect Industry Lobbying,” CBPP, January 30, 2019, https://www.cbpp.org/blog/pass-through-deduction-regulations-reflect-industry-lobbying.
[13] Emily Horton, “Tax Planner: Drive Wealthy Clients Through ‘Gaping Hole’ in Tax Code,” CBPP, May 31, 2018, https://www.cbpp.org/blog/tax-planner-drive-wealthy-clients-through-gaping-hole-in-tax-code.
[14] Roderick Taylor, “House Bill Leaves IRS Enforcement Depleted,” CBPP, May 24, 2018, https://www.cbpp.org/blog/house-bill-leaves-irs-enforcement-depleted. This blog post was written based on the House Appropriation Committee’s 2019 funding bill, but the enforcement figure of 25 percent remains the same in the final appropriations bill as well.
[15] The share of income going to the top 1 percent increased from 7.4 to 13.0 percent, while the share going to the bottom 60 percent fell from 36.3 to 32.5 percent. See: Congressional Budget Office, “The Distribution of Household Income, 2015,” November 8, 2018, https://www.cbo.gov/publication/54646. Income shares have been recalculated to exclude households with negative income.
[16] Chuck Marr, Brandon DeBot, and Emily Horton, “How Tax Reform Can Raise Working-Class Incomes,” CBPP, October 13, 2017, https://www.cbpp.org/research/federal-tax/how-tax-reform-can-raise-working-class-incomes.
[17] Chuck Marr et al., “EITC and Child Tax Credit Promote Work, Reduce Poverty, and Support Children’s Development, Research Finds,” CBPP, updated October 1, 2015, https://www.cbpp.org/research/federal-tax/eitc-and-child-tax-credit-promote-work-reduce-poverty-and-support-childrens.
[18] “2017 Tax Law’s Child Credit: A Token or Less-Than-Full Increase for 26 Million Kids in Working Families,” CBPP, August 27, 2018, https://www.cbpp.org/research/federal-tax/2017-tax-laws-child-credit-a-token-or-less-than-full-increase-for-26-million.
[19] Jennifer Beltran, “Working-Family Tax Credits Lifted 8.9 Million People Out of Poverty in 2017,” CBPP, January 15, 2019, https://www.cbpp.org/blog/working-family-tax-credits-lifted-89-million-people-out-of-poverty-in-2017.
[20] Dylan Matthews, “Obama is testing Paul Ryan’s commitment to fighting poverty, and Ryan is failing badly,” Vox, December 2, 2014, https://www.vox.com/2014/12/2/7320363/eitc-child-credit-ryan.
[21] Brendan Duke, “2017 Tax Law’s Pass-Through Deduction Could Encourage ‘Workplace Fissuring,’” CBPP, December 20, 2018, https://www.cbpp.org/blog/2017-tax-laws-pass-through-deduction-could-encourage-workplace-fissuring.
[22] Jane Gravelle, “The Need for Comprehensive Tax Reform to Help American Companies Compete in The Global Market And Create Jobs for American Workers,” House Ways and Means Committee hearing, May 12, 2011, https://www.gpo.gov/fdsys/pkg/CHRG-112hhrg70882/html/CHRG-112hhrg70882.htm.
[23] Kimberly Clausing, “Profit Shifting Before and After the Tax Cuts and Jobs Act,” SSRN, October 29, 2018, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3274827.
[24] Tara Straw et al., “Strong Demand Expected for Marketplace Open Enrollment, Despite Administration Actions,” CBPP, October 31, 2018, https://www.cbpp.org/research/health/strong-demand-expected-for-marketplace-open-enrollment-despite-administration#_ftn11.
[25] Jacob Leibenluft, “Tax Bill Ends Child Tax Credit for About 1 Million Children,” CBPP, December 18, 2017, https://www.cbpp.org/blog/tax-bill-ends-child-tax-credit-for-about-1-million-children.
[26] Proponents of the law such as Treasury Secretary Steven Mnuchin claim that the tax cuts will pay for themselves by increasing economic growth. Yet estimates from CBO that take into account the law’s macroeconomic impact as well as increase in interest payments on the added debt still put its 2018-2027 cost at $1.9 trillion.
[27] Robert Greenstein, “Commentary: With Tax Cuts for the Top, GOP Leaders Now Aim Budget Cuts at the Bottom,” CBPP, December 21, 2017, https://www.cbpp.org/research/federal-tax/commentary-with-tax-cuts-for-the-top-gop-leaders-now-aim-budget-cuts-at-the.
[28] A more detailed, interactive version of this Appendix can be found at: https://www.cbpp.org/federal-tax/fundamentally-flawed-2017-tax-law-largely-leaves-low-and-moderate-income-americans#mapEmbed.
[29] Chuck Marr, “House GOP Tax Fix for Restaurant, Retail Owners Leaves Out Millions of Their Workers,” CBPP, December 6, 2018, https://www.cbpp.org/blog/house-gop-tax-fix-for-restaurant-retail-owners-leaves-out-millions-of-their-workers.
[30] Congressional Budget Office, “Options for Reducing the Deficit: 2019 to 2028,” p. 307, December 13, 2018, https://www.cbo.gov/system/files?file=2018-12/54667-budgetoptions.pdf.
[31] Office of Management and Budget, FY17 President’s Budget Appendix, p. 1047, https://obamawhitehouse.archives.gov/sites/default/files/omb/budget/fy2017/assets/tre.pdf.
[32] For OMB’s calculation of the net savings derived from the proposed IRS cap adjustment, see Office of Management and Budget, FY19 Analytical Perspectives Table 10-2, P.110, https://www.whitehouse.gov/wp-content/uploads/2018/02/ap_10_process-fy2019.pdf.