House GOP Framework Would Give Millionaires $2.6 Trillion in Tax Cuts, While Cutting Programs for Low- and Moderate-Income People by $3.7 Trillion

Together, the House GOP’s budget plan proposed in March and its “Better Way” tax reform package released in June would significantly raise the incomes of millionaires while sharply cutting programs for low-, moderate-, and middle-income families and individuals.  The package would make most Americans significantly worse off and exacerbate income inequality, despite the exceptionally wide divergence between incomes at the top and for the rest of the population that has developed in recent decades.

These findings emerge from an examination of new data on the tax-cut plan from the Urban-Brookings Tax Policy Center (TPC)^[1] in conjunction with our previous analysis of the House GOP budget plan.^[2] 

By 2025, nearly all of the tax cuts would go to households with incomes over $1 million.One reason a significant increase in inequality would occur is that the House GOP tax plan’s $3.1 trillion in tax cuts over the next ten years are dramatically tilted towards the top, as the Tax Policy Center’s analysis shows.  By 2025, nearly all of the tax cuts would go to households with incomes over $1 million; low- and middle-income households would gain only slightly.  Over the next decade, millionaires would receive an estimated $2.6 trillion in tax cuts.

The increase in inequality also reflects the magnitude and composition of the $6 trillion in program cuts over the next ten years envisioned in the House GOP’s budget plan, which aims to balance the budget over this period.  The plan’s spending cuts would hit programs for low- and moderate-income people much harder than other programs, denying health insurance to tens of millions of people and reducing food assistance and other basic aid to millions more.  Over the next decade, the plan would cut programs assisting low- and moderate-income households by approximately $3.7 trillion, dwarfing the very small gains these households would receive from the House GOP tax cuts.  Middle-class households likewise would lose far more from the House GOP’s planned budget cuts than they would gain from the modest tax cuts they would receive from the tax plan.

These findings, moreover, underestimate the adverse impact these proposals would have on low- and middle-income households.  That’s because the budget cuts in the House GOP budget plan, which predated the Better Way tax plan, do not reflect the additional budget cuts that would be needed to offset the tax cuts’ cost; offsetting their cost would be necessary if the House GOP wished to adhere to its goal of balancing the budget over ten years.  (The House GOP budget plan issued in March assumed no revenue loss from changes in tax policies.)  Were the House GOP to put forth additional program cuts to offset the large cost of the House GOP tax plan, then programs serving low- and middle-income households almost certainly would be cut still more deeply.

The Distribution of the Tax Cuts

On September 16, TPC issued its analysis of the House GOP’s tax plan, which was released earlier this year as part of its Better Way agenda.  No matter how it’s measured, the tax plan is extremely regressive.^[3]

• In 2017 alone, the TPC analysis indicates millionaires would receive an average tax cut of $330,000 apiece, with their after-tax incomes rising by 15 percent.  In contrast, the middle fifth of households would receive an average tax cut of $260, boosting their after-tax income by just one-half of 1 percent.  (Appendix Tables 1 and 2 provide detailed breakouts of the distribution of the tax cuts in 2017 and 2025, the years for which TPC has made this information available.)
• The total size of the tax cut diminishes somewhat over time, but it remains quite large for millionaires while virtually disappearing for the middle class.  In 2025, TPC estimates, the tax cuts would still raise average after-tax incomes by 11 percent among millionaires but by only 0.1 percent among the middle fifth of households. 
• Millionaires’ share of the total tax cuts would be extreme to begin with and then grow even larger over time; millionaires would receive 71 percent of the total benefits from the tax cuts in 2017 and 97 percent of the tax cuts in 2025.^[4]
• By combining TPC’s estimate of the tax cuts’ distribution with its estimates of the total size of the tax cuts, we estimate that millionaires would receive $2.6 trillion in tax cuts over the next decade, compared to $56 billion for the middle fifth of taxpayers.^[5]  Other categories of low- and middle-income households also would gain little (see Figure 1).^[6]

Share Chart on Facebook Share Chart on Twitter

Chart

Of those with incomes exceeding $1 million a year, the biggest winners would be multimillionaires.  TPC finds that for the top 0.1 percent of the population — households whose annual incomes will exceed $3.7 million in 2017— the tax cuts would increase after-tax incomes by 17 percent in 2017, the most of any group.  Their tax cuts would average $1.3 million per household in that year alone.  Over the next decade, the top 0.1 percent would receive more than half of the House GOP tax cuts, or $1.7 trillion in tax cuts, by our estimate.^[7]

House GOP Spending Cuts Mostly Target Low- and Middle-Income Households

While low- and middle-income households would gain little from the House GOP’s tax cuts and millionaires would gain tremendously, the reverse is true for the budget cuts the House Budget Committee’s GOP majority approved in March.  Low- and moderate-income households would be hit to an inordinate degree, and middle-income households would be hit hard, while millionaires would be little affected.^[8] 

The goal of the House GOP’s budget plan is to balance the budget in ten years without raising revenues and while essentially holding Social Security and defense funding harmless.  The plan would cut other programs by $6 trillion over the next decade. 

• The plan would cut programs for low- and moderate-income people by about $3.7 trillion.  Altogether, it would secure 62 percent of its budget cuts from these programs, even though they account for just 28 percent of non-defense program spending (and just 24 percent of total program spending, including defense).  By 2026, programs for low- and moderate-income people would shrink by an unprecedented 42 percent, causing tens of millions of people to lose health coverage and millions to lose basic food or other support.^[9]
• Middle-income households would also lose significantly.  The remaining $2.3 trillion in budget cuts would substantially reduce spending on programs that affect people across the income spectrum, such as infrastructure, education, natural resources and environmental protection, and community development. 
• Only a tiny fraction of spending cuts would affect millionaires.  As noted, the effects of the $2.3 trillion in other program spending would likely be dispersed fairly evenly across the population, and less than 1 percent of people live in a household headed by a millionaire.^[10]

House GOP Framework Implies Far More Than $6 Trillion in Spending Cuts

The House GOP’s budget plan aims to balance the budget over ten years entirely through program cuts, with no change in revenues.  But the House GOP’s tax proposal would reduce revenues by $3.1 trillion under TPC’s conventional estimate (and by $2.5 trillion under its dynamic estimate that seeks to assess the long-run effect of the tax cuts on the economy; this is the first time TPC has released a dynamic estimate, and its dynamic estimating approach is expected to be developed more fully in coming months).  This means that, on top of the $6 trillion in cuts in the House GOP budget, further budget cuts — up to half again as large — would be needed to pay for the tax cuts.^[11]

The Combined Effect

It is impossible to estimate precisely the net effect of the House GOP budget and tax plans.  The budget plan lacks detail about the specific programs that would bear many of its cuts, and one can’t distribute comprehensive spending-cut plans with the same precision that TPC’s model distributes tax-cut plans.  In addition, the House GOP has not described how it would offset deficits caused by its tax plan.

Nonetheless, the extraordinary degree to which the House GOP tax plan benefits millionaires (while providing little tax reduction to others), as well as the severe tilt of its budget plan against programs benefiting low- and moderate-income people, make clear that millionaires would gain enormously while most of the rest of the population would lose significantly.  Consider the following comparisons.  Over the next decade, even without accounting for any additional spending cuts to pay for the tax cuts:

• The House GOP budget plan would, as noted, cut programs for low- and moderate-income people by $3.7 trillion — or about 40 times the estimated $87 billion in tax cuts for the bottom two-fifths of the population that the House GOP tax plan would provide.
• The program cuts in the budget plan would take some hundreds of billions of dollars from the middle fifth of households^[12] — or far more than the $56 billion they would receive under the House GOP tax plan.
• Meanwhile, millionaires would receive $2.6 trillion in tax cuts while being touched little by the budget cuts.  They would be big net winners, gaining significantly north of $2 trillion over the next ten years.

In short, most households would be significant net losers under these budget and tax policies.  At a time when many Americans believe income inequality has grown unacceptably large, the House GOP budget and tax framework would further widen this divide significantly.