By 2027, more than half of all Americans — 53 percent — would pay more in taxes under the tax bill agreed to by House and Senate Republicans, a new analysis by the Tax Policy Center finds. That year, 82.8 percent of the bill’s benefit would go to the top 1 percent, up from 62.1 under the Senate bill.
And even in the first years of the bill's implementation, when it’s an across-the-board tax cut, the benefits of the law would be heavily concentrated among the upper-middle and upper-class Americans, with nearly two-thirds of the benefit going to the richest fifth of Americans in 2018.
The paper is the first rigorous analysis of who wins and loses under the bill as agreed to in conference committee. House and Senate negotiators agreed to a number of changes in the bill, most notably lowering the top income tax rate for individuals to 37 percent from its current level of 39.6 percent. The analysis does not include an additional cost of the legislation: its repeal of the individual mandate, which the Congressional Budget Office estimates could cause as many as 13 million fewer people to have health insurance, reducing federal spending for poor and middle-class Americans’ health insurance by $338 billion over 10 years. That worsens the bill’s distribution for the poor and middle class.
Almost all provisions of the bill, with the exception of the reduction in the corporate tax rate from 35 percent to 21 percent, are temporary, expiring at the end of 2025. One exception is the adoption of a new slower-growing inflation measure to adjust tax brackets, a change that effectively raises taxes over time and helps pay for the permanent corporate rate cut. Since corporate rate cuts mostly help Americans rich enough to own stock, that means that in 2027, poor and middle-class Americans would see a very mild tax increase on average:
The rich and ultrarich, by contrast, would continue to see massive tax breaks due to the corporate provisions. The top 1 percent would claim 82.8 percent of the benefit of the bill, and receive an average cut of $20,660. The top 0.1 percent, the richest of the rich earning $5.1 million or more a year, would get $148,260 back on average.
These averages, however, can cloak variation within income groups:
Overall, 53.4 percent of American households would see a tax increase and 25.2 percent would see a tax cut in 2027. But the shares depend substantially on what income group you're in. Most Americans in the bottom fifth of the distribution — those in poverty, or near poverty — wouldn't see their taxes change either way, as they typically don't earn enough money to pay income taxes. The different inflation measure can reduce the tax refund they receive from the earned income tax credit and child tax credit, but the effect is fairly small.
By contrast, nearly 70 percent of Americans in the middle fifth of the income distribution — earning $54,700 to $93,200 a year in 2017 dollars — would see their taxes go up, with an average tax hike of $150. That's not a huge change, but the direction is certainly not favorable.
Republicans advocating for the bill have focused less on 2027, when much of the bill’s changes will have expired, than on 2018 through 2025, when all its cuts, including for individuals, will be in effect. In 2018, the bill is an across-the-board cut for all income groups, but the biggest cuts are reserved for the upper middle class:
At this point, across-the-board rate cuts will be in effect, as well as a doubled child tax credit and a nearly doubled standard deduction (the latter two provisions offsetting the elimination of personal exemptions from the individual income tax). Predictably, the result is an across-the-board tax cut for most families.
Poor Americans, who mostly don’t earn enough for a positive income tax burden and who are basically left out of the child tax credit expansion in the bill, get $60 each, a 0.4 percent boost to their income, on average. But the middle class would get $930 on average, or a 1.6 percent boost. The biggest percentage boost goes to the 95th to 99th percentiles, people earning $307,900 to $732,800 a year. They get 4.1 percent of their income back, or about $13,480 each. The top 1 and top 0.1 percent get less in percentage terms but still more than the middle class. The top 0.1 percent gets a 2.7 percent income boost, or $193,380 on average.
In 2018, the benefits are also more uniform, with a rather small share of each income group seeing their taxes actually go up:
The group with the highest share of people paying more in 2018 is actually the ultrarich, the top 0.1 percent, about 16.2 percent of whom would see their taxes go up. Only about 7.3 percent of the middle class would see their taxes go up.
But just because you don’t receive a tax hike doesn’t mean you get a cut. About 44.9 percent of the poorest Americans wouldn’t see a hike or cut, because they don’t earn enough to benefit (or suffer).
Note, again, that these tables leave out the effect of millions of people losing health insurance, typically subsidized insurance through Medicaid or the health insurance exchanges, due to the repeal of the individual mandate. That can change the bill from a small net benefit in 2018 for poor families to an overall net cost.