Tax cut for most has time limit
North Carolina Sen. Thom Tillis says some in the media are twisting the truth about the Senate’s plan to change the tax code.
Tillis held a news conference last week with fellow Republican Sens. David Perdue of Georgia and Dean Heller of Nevada to tout and explain the Senate’s efforts. There, he said the plan will help most Americans who earn less than $70,000 a year.
“A reporter came up to me and said ‘Senator, how do you respond to the fact that people making $30,000, $50,000, $70,000 are going to be paying more in taxes?’ I said that’s patently untrue on the whole,” Tillis said.
How does the Senate plan affect Americans who earn less than $70,000 a year? Does it help them, as Tillis suggests?
$450 tax cut
When we asked Tillis to explain the changes the Senate plan promises, his office referred us to a fact-check published by The Washington Post on Nov. 2.
The Post awarded “Four Pinocchios” — the worst possible rating — to Senate Democrats for claiming that the Senate plan would raise income taxes for those who earn less than $86,000 a year.
The Post found that the average tax cut for the lowest four quintiles of taxpayers — that is, the bottom 80% of the income spectrum, or about 97 million households — would be $450. However, a report by Democrats on the Joint Economic Committee found that about 8 million households earning less than $86,100 would receive an average tax increase of $794.
The Post found that the Democrats mangled their claim. We wanted to look specifically at whether Tillis’ claim is accurate.
Tax cuts for most – initially
For starters, we should note that the Post’s fact-check relied on a “framework” assembled before the bills were finalized, so it’s not an analysis based on the most up-to-date versions of the bills.
The Senate plan, like the House plan, breaks annual income into separate income ranges, so it’s hard to pinpoint how the plan would affect someone earning approximately $70,000. But analyses by various groups suggest that most Americans in the group Tillis described — those earning $30,000 to $70,000 a year — would get tax cuts over the next five to eight years.
One of the most recent studies of the plan was conducted by the Joint Committee on Taxation, a nonpartisan committee of Congress that is comprised of expert economists, attorneys, and accountants who assist the majority and minority parties in both houses of Congress on tax legislation.
The report, compiled on Nov. 27, shows that the plan would cut taxes for most taxpayers earning between $30,000 and $75,000 starting in 2019.
That year, the JCT estimated 60% of people earning $30,000$40,000 a year would get a tax cut. About 71% of the $40,000$50,000 bracket would get a tax decrease and 80% of people earning $50,000-$75,000 would get a cut.
Changes in 2027
So Tillis has a point that many lower- and moderate-income taxpayers will see tax cuts from the bill — at least at first.
What he leaves out is that many of the middle-class tax cuts in the bill are temporary. So by 2027, according to the JCT, most Americans earning between $30,000 and $75,000 would see their taxes change by less than $100 compared to today’s rates. In each of those income ranges, the JCT reports that fewer than 15% of households would get a tax cut and more than 20% would see their taxes rise.
An analysis by the Congressional Budget Office yielded a similar prediction: the Senate plan would leave Americans earning $40,000 or less as “net losers” by 2021 and most people earning less than $75,000 a year would be worse off by 2027.
The Tax Foundation reported a more specific prediction: that “the bottom 80% of taxpayers would see an average increase in after-tax income ranging from 0.3% to 0.4%.” The top 1%, meanwhile, might still see tax cuts of up to 4.5%.
Daniel Keylin, an assistant to Tillis, said it’s safer to assume that Congress will act to keep or reduce the tax rate than it is to assume they’ll let taxes rise.
“It’s hard to imagine Congress electing to effectively raise taxes on the nation 10 years from now, especially once the economic benefits of tax reform become clear,” Keylin said.
Other considerations
The Senate plan, unlike the House plan, would scrap the federal tax penalty for Americans who do not sign up for health insurance — a burden
that falls disproportionately on lower- and moderate-income households.
The mandate was introduced in the Affordable Care Act, known as Obamacare. Some could save money if the mandate is lifted. But, if too many go without insurance, health insurance costs could rise across the board for those who opt to keep buying coverage. In addition, anyone without insurance would be responsible for their own medical costs, which would eat into any tax savings.
The New York Times reported that the Senate plan might increase taxes for roughly onequarter of middle-class families that itemize their deductions. The Senate bill would eliminate some popular tax breaks, including deductions for state and local taxes, according to the Times.
Our rating
Tillis scolded a reporter for suggesting that Americans earning less than $70,000 would pay more in income taxes under the Senate’s plan to change the tax code.
Initially, most — though not all — Americans in that income range would pay less in taxes. But after a few years, there would be more clear losers than clear winners in tax payments among members of that income group. Tillis is doing some selective presentation of the data. On balance, we rate his statement Half True.