Richest gain the most from tax plan
Report scorecard shaves $1.6K off average bill, but $129K for wealthy
WASHINGTON — The Republican tax plan promoted by President Donald Trump this week as a middle-class tax cut would overwhelmingly benefit the wealthiest Americans and businesses, according to an analysis released Friday by the nonpartisan Tax Policy Center.
The report, which is the first detailed assessment of the plan’s financial impact, found that the average tax bill for all income groups would decline by $1,600, or 2.1 percent, in 2018. The biggest decrease would go to those with incomes above $730,000, who would see their after-tax incomes rise by an average of 8.5 percent, or about $129,000.
Those in the middle quintile — with incomes averaging $66,960 — would see their after-tax income rise by 1.2 percent, or about $660.
The breakdown is based on the framework released by the “Big Six” group of Republican lawmakers and administration officials this week, which did not include many details that could change the distributional impact. For instance, the plan called for an increase in the child tax credit but did not specify how much it would rise and whether it would be across income groups. The plan also opened the door for adding a fourth, higher tax bracket for the richest Americans, which would also change the distributional impact if enacted.
Pain for middle class
Still, even with those changes, the report makes clear that the plan may not be the salve for the middle class that Trump has been pitching.
The plan would provide enormous benefits to corporate America, with a $2.6 billion cut in business taxes. Individual income tax revenue would actually increase by $470 billion, largely as a result of changes in personal deductions and exemptions as well as an increase in the bottom tax rate to 12 percent from 10 percent.
“Tax collections would shift dramatically from businesses to individuals,” said Eric Toder, co-director of the Tax Policy Center.
The loss of deductions would hit the upper middle class the most, and more than one-third of the taxpayers who earn $150,000 to $300,000 could see their taxes go up next year, the report found. They would be hit particularly hard by the repeal of the state and local tax deduction.
Gary Cohn, director of the National Economic Council, said Thursday that the typical American family making $100,000 per year would probably get a $1,000 tax cut next year. He suggested this would stimulate the economy as people put their additional money toward expenditures like kitchen renovations and buying new cars.
Counting on growth
The Tax Policy Center estimates the plan will cost $2.4 trillion over a decade. Republicans are counting on a surge of economic growth to pay for the plan and the Tax Policy Center analysis does not account for those “dynamic” effects.
Many aspects of the Republican plan are being left to Congress to decide. Thus far, the proposal would slash the corporate tax rate to 20 percent from 35 percent and create a new 25 percent tax rate for “pass through” businesses such as partnerships, sole proprietorships and family farms.
It also would lower the top individual tax rate to 35 percent from 39.6 percent, while raising the bottom rate to 12 percent from 10 percent as it also doubles the standard deduction.
The plan would eliminate many corporate “loopholes” and deductions, such as the state and local tax deduction. But it also would get rid of many provisions that are costly to the rich, like the estate tax and the alternative minimum tax.
“It’s hard to see if you continue to have those provisions in a tax proposal that it doesn’t benefit high income individuals and households disproportionately,” said Mark J. Mazur, director of the Tax Policy Center and a former assistant secretary for tax policy at the Treasury Department.