The report shows that this bill is much like a teaser rate on a new credit card: there are some goodies in the first couple of years, but those disappear fairly quickly, at least for those below the median income.
In 2019, the first full year that this bill would be law, the benefits are concentrated on the bottom of the income stream, with middle-class people, on average, paying just under ten per cent less in taxes than they would if the law weren’t passed. With each passing year the benefits shift upward, toward the rich.
By 2021, those making between twenty thousand and thirty thousand dollars a year are paying considerably more in taxes, those between thirty thousand and two hundred thousand see their benefit shrinking, and those making more start to see their taxes falling.
By 2027, every income level below seventy-five thousand dollars a year sees a tax increase, while everybody above that level sees a continued decrease, with the greatest cut in taxes accruing to those making more than a million dollars a year.
.. the effective tax rate—meaning the percentage that people, on average, actually pay after they take all deductions—changes in a precisely regressive form. The poorer you are, the higher your effective rate will rise. By 2027, only those making a hundred thousand a year or more will see an actual cut in their effective tax rate.
.. Feldstein is, arguably, the single most widely respected Republican-leaning scholar of tax policy, and one of the few academics who came out in favor of the bill
.. He argues that cutting individual tax rates won’t increase economic growth and will add to the deficit—which, he acknowledges, is a bad thing. But he’s so excited about the corporate tax-rate cut that he thinks the bill should pass nonetheless.
.. Its most respected defender acknowledges that three-quarters of the benefit are a wasted, harmful gift for the rich, but a quarter of the benefit goes to corporations, and we must assume they will spend it wisely.
How to Invent A Middle-Class Tax Hike
A case study in how Washington math distorts reality.
But in some earlier years Joint Tax shows tax increases. For example: In 2023 the average tax rate for folks earning $20,000 to $30,000 would increase to 4.2% from 3.7% under present law, or so the budget lords say.
Recall that the Senate bill repeals the ObamaCare penalty on folks who decline to buy health insurance. This “saves” money under the Senate’s bonkers budget rules. Joint Tax assumes the following:
Some folks may choose not to buy ObamaCare, though the plans and relevant subsidies will still be available. As a result of all this human freedom, some taxpayers may not claim the Affordable Care Act’s tax credits. Presto! A Republican tax increase on the poor and middle class.
.. Senator Pat Toomey of Pennsylvania exposed this logic: “Let’s imagine somebody qualifies for unemployment insurance” but chooses not to sign up. Then they wouldn’t receive unemployment benefits. “Did that person just get a tax increase?”
The answer is so obvious that only intelligent people could get it wrong.
How to Fix the Republican Tax Plan
the G.O.P. still ended up with a pair of bills that look, once again, like the caricature of Reagan-era Republicanism the party has become: heavy with tax cuts for corporations and the heirs of millionaires, lighter on relief for the middle class, lighter still for the working class, with a complicated slew of provisions and score-gaming expiration dates that have made it hard to discern whether lots of non-rich Americans (including the plan’s supposed model beneficiary, a family making $60,000 with multiple kids) even get a tax cut at all.
..The Republicans seem to be trying, in their none-too-competent and ideologically straitjacketed way, to cut taxes for two major constituencies, employers and middle-class families, while paying for some of these tax cuts by goring well-off professionals in high-tax liberal states.
.. The (much more modest) Republican proposal to tax the richest university endowments is admittedly more of a targeted culture-war jab.. the problem is what the Republicans are doing with the money. Specifically (and entirely predictably), they are plowing way too much of it into tax cuts for their donors, and not enough into tax cuts for everybody else... Senate Republicans seem to be turning to a more complicated and irresponsible alternative instead — one that gets more money for parents and middle-income taxpayers up front by making all their tax cuts sunset after 2025 (even as the corporate cuts are made permanent).. And it tells you something depressing, if unsurprising, about the G.O.P. that this combination is apparently vastly preferable to asking the donors and ideologues to just accept half a corporate-tax-cut loaf... At some point the party’s moderates and would-be reformers have to take a stand for the wild-and-crazy proposition that the Republican Party should pass legislation that has some chance of being popular and isn’t insanely jury-rigged.
How a New Inflation Measure Raises Taxes on the Middle Class
Switch to chained consumer-price index would shift burden after several years as people move into higher bracket
Tucked into Republicans’ tax overhaul bill is a technical tweak to how inflation is measured. The change is designed to hold down the deficit, but over time it becomes a significant tax increase that hits many of the same middle-class households who start out as the plan’s beneficiaries.
.. This makes economic sense because economists consider the chained CPI a more accurate gauge of the cost of living. But because it also yields a lower measure of inflation, it pushes people more rapidly into higher tax brackets. For some income groups, this could eventually wipe out the entire initial tax cut
.. many taxpayers with no real gain in income would still be pushed into higher brackets merely because of inflation.
.. But economists have long known the CPI overstates the cost of living. When prices for a particular commodity rise faster, consumers shift to cheaper alternatives. The CPI adjusts for this by updating the weights of various items in the index every two years.
.. Since 2001, inflation has averaged a quarter percentage point less under the chained CPI than the regular CPI.
.. This raises about $130 billion more revenue over 10 years in the latest versions of both the House and Senate bills
.. After-tax incomes drop by 0.2% to 0.3% for households earning between $40,000 and $1 million and 0.4% for those earning between $20,000 and $40,000. The impact is largest for the lowest-income taxpayers because they depend more on the standard deduction, child tax credit and a new family flexibility credit, all of which will be indexed to the chained CPI.
.. This is also why some income groups start with a tax cut and end up with a tax increase.
.. Once the new index becomes law, don’t count on it being reversed, for two reasons: First, because the effect is so subtle in any single year, most taxpayers won’t even notice so there is little political price to keeping it. Second, as deficits widen, the revenue the new index raises becomes ever more irreplaceable.
.. Lawmakers decided to let most of the personal tax cuts expire in 2025 to keep the total cost within Senate guidelines. But the chained CPI will stay.
.. when lawmakers finally get around to tackling the deficit, they may apply the chained CPI to government benefits such as Social Security to save even more money.