Joint Committee on Taxation Distribution Tables Confirm Skewed Priorities of House Tax Bill

The Joint Committee on Taxation (JCT), Congress’ official estimator of tax legislation, has released an estimate of how the tax bill proposed by House Ways and Means Committee Chairman Kevin Brady would change revenues at different income levels across the distribution.^[1] Because the JCT estimates exclude the bill’s proposed cuts to the estate tax and present a limited set of distributional measures, understanding them requires some analysis and adjustment. But the estimates show that the tax cuts proposed in the House bill are overwhelmingly skewed to the top. They also show that some income groups, including some moderate-income households, would see tax increases (on average) in some years, in a bill that cuts taxes overall by $1.5 trillion over a decade.

The Tax Cuts in the House Bill Are Overwhelmingly Skewed to the Top

Households with annual incomes over $1 million would see their after-tax incomes increase by 3.2 percent, 16 times the percentage increase for any income group in the bottom half of the income distribution.Based on the JCT distribution tables, adjusted to incorporate the effects of repealing the estate tax, we estimate that in 2027:

• Households with annual incomes over $1 million would see their after-tax incomes increase by 3.2 percent, 16 times the percentage increase for any income group in the bottom half of the income distribution. (See Figure 1.) (The disparity in average tax cuts measured in dollars would be even larger.)
• About 45 percent of cost of the bill’s tax cuts would go to households with incomes above $500,000 (fewer than 1 percent of filers). About 38 percent of the bill’s cost would go to tax cuts for households with incomes over $1 million (about 3 out of every 1,000 filers).^[2]

Share Chart on Facebook Share Chart on Twitter

Chart

These estimates focus on 2027, the year for which the JCT tables are most informative because 2027 best reflects the distribution of the plan once in full effect. For example, the plan uses the “chained” Consumer Price Index (CPI), a slower-growing measure of inflation, to index tax brackets and other provisions of the tax code, and the effects of this provision would grow over time. Likewise, by 2027, the plan’s temporary family tax credit would have expired, and the impact of its one-time tax on multinationals’ foreign profits would have faded.^[3]

As noted, our estimates also adjust the JCT estimates to add in the effects of repealing the estate tax. The House bill would cut, and then in 2023 repeal, the estate tax. This is one of the tax plan’s most regressive aspects, delivering a tax cut windfall to the heirs of the wealthiest 0.2 percent of estates in the country, worth an average of $3 million per estate by 2027.^[4] Those tax cuts don’t appear in the JCT distribution tables, because JCT’s standard approach does not incorporate estate tax changes in its distribution estimates. In contrast, other analysts, such as the Tax Policy Center (TPC) and career experts at the Treasury Office of Tax Analysis, do include the effect of estate tax changes when assessing the distribution of tax proposals. In order to present the full effect of the House bill in 2027, therefore, the estimates we present above adjust the JCT estimates to incorporate the bill’s proposed repeal of the estate tax, using TPC estimates of the distribution of the estate tax.^[5]

The Bill Would Raise Taxes on Many Individuals

The House and Senate adopted a budget resolution that allows them to add $1.5 trillion in tax cuts to the deficit over ten years. Overall, Chairman Brady’s bill includes tax cuts that are close to that total. Yet the JCT distribution tables show that the bill does not provide tax cuts to every income group in every year over the decade.

Specifically, the JCT estimates of the individual and business provisions show tax increases for: filers with incomes between $20,000 and $40,000 from 2023 to 2025; filers with incomes between $20,000 and $30,000 in 2027; and filers with incomes between $200,000 and $1 million in 2023.^[6]  (JCT also presents the effects of the individual and business provisions separately. These tables show that the business tax provisions would increase taxes for all income groups in 2023, while individual income taxes would increase for filers with incomes between $20,000 and $40,000 in 2023 and each year after; and for filers with incomes between $200,000 and $500,000 in 2023 and each year after.) These tax increases would likely be due to:

• Letting a key individual income tax provision expire in 2023. The bill would repeal (immediately and permanently) personal exemptions, and increase the 10 percent tax rate to 12 percent for many households. To protect households from the increased taxes they would otherwise face largely due to these provisions, the bill includes a $300 credit that could be claimed for each non-child dependent. But this provision would expire after 2023 — so many families would then face tax increases.  
• Moving to the chained CPI. As mentioned above, the bill adopts the chained CPI to adjust tax brackets and other key elements of the tax code. The chained CPI grows more slowly than the inflation measure used under current law, and, over time, would increase taxes roughly proportionately across the income distribution. The effect of this provision would take time to accumulate.

• Timing shifts and expiring business tax provisions. The business tax provisions include one-time revenue raisers (such as a one-time tax on multinationals’ foreign profits), provisions that the bill would sunset (“full expensing”), and other new provisions in the bill whose impact on revenues would not be steady over time. ^[7] (This time pattern likely explains why JCT estimates that businesses taxes would rise in 2023 across all income groups: on net, the 2023 calendar year would be the least favorable for businesses overall, but after that, the business tax cuts would start to grow again.)

It is also critical to note that the JCT tables show only the average impacts across each income category. Within each income group, there will be filers facing tax cuts and tax increases — depending on households’ family structure, sources of income, and deductions. The averages mask these potentially very large differences within income groups. Eventual TPC estimates of the bill will, if they follow their typical approach, show the number of filers in each income category facing tax cuts and tax increases, and the average tax cut within each category.

What’s already clear from the JCT tables, however, is that the tax increases that some filers face under the plan would pay for tax cuts that would be, on net, extremely skewed to the very wealthy and profitable corporations. And that’s before accounting for how these tax cuts would swell federal budget deficits.^[8] By increasing deficits, tax cuts would create pressure to cut programs that primarily benefit low- and middle-income families, making their true distributional impacts even more skewed than the JCT tables show.^[9]