House Republicans announced their tax-cut plan last week with the pledge that “the whole purpose of this is a middle-class tax cut,” as House Speaker Paul Ryan told CNN on Monday. A new analysis finds that’s not the case.
In fact, the richest one percent of Americans would get half the direct benefits of the plan, according to the Institute on Taxation and Economic Policy. Specifically, the wealthiest one percent, who earn 22 percent of all income and pay 36 percent of all federal taxes, would get 48 percent of the GOP tax cuts.
The top bracket would see the most benefit immediately, and those benefits would only increase over time, while they would actually decline for lower brackets.
“Some of the provisions in the House bill that benefit the middle-class — like lower tax rates and fewer brackets, an increased standard deduction, and a $300 tax credit for each adult in a household — are designed to expire or become less generous over time,” the ITE says in their report, which was released on Monday. “Some of the provisions that benefit the wealthy, such as the reduction and eventual repeal of the estate tax, become more generous over time.”
Meanwhile, “The middle 20 percent of income-earners in America, the group that is quite literally the ‘middle-class,’ would receive 10 percent of the benefits in the U.S. in 2018 and just 8 percent of the benefits in 2027,” the report says. “In other words, in 2027 the middle fifth of Americans would receive only one sixth of the benefits received by the richest one percent of Americans.”
The main features of the GOP tax plan include permanently cutting the corporate tax rate from 35 to 20 percent, and eliminating the Alternative Minimum Tax and the estate tax — all of which would benefit high earners more than those with lower incomes. A provision that would directly benefit the middle class — increasing the child tax credit from $1,000 to $1,600 and adding $300 for each member of the family that is not a child — would not help the poorest families, and the new credit is designed to expire in five years, the ITE says.
Last week, White House press secretary Sarah Huckabee Sanders claimed that the average American household would get a “$4,000 raise” if the bill were passed. NPR has pointed out that this figure is theoretical — it’s based on an estimate that assumes a cut in the corporate tax rate would trickle down to workers with higher wages and jobs restored to the U.S. from overseas. Several economists say that estimate is too high. The plan also presupposes that the economy will grow at 3% on a sustained basis.
The plan, which would cost the government $1.5 trillion, would also limit the mortgage-interest deduction and cap the state and local tax deduction. Last week, Money magazine reported that the plan would actually raise tax bills for 30% of middle-class households by 2027.