Since House Republicans released their tax reform legislation last week, the plan has been attacked from the Left and Right.
Repeating word-for-word the Democrat script to attack all tax cuts proposed in any decade, Senate Minority Leader Chuck Schumer, D-N.Y., called the proposal a “betrayal of the middle class,” while House Minority Leader Nancy Pelosi called it a Ponzi scheme that helps the wealthy at the expense of middle-class families.
On the other hand, a Wall Street Journal editorial called out the tax plan for raising taxes on “the rich.”
So, who is right?
In this case, both are wrong. The House GOP tax plan, known as the “Tax Cuts and Jobs Act,” cuts taxes at all income levels – rich, poor, and middle class.
How do they do it? First, the House plan proposes sweeping reform to the way individuals are taxed. The bill consolidates the existing tax brackets from eight to five (the new rates are 0, 12, 25, 35, and 39.6 percent). It doubles the standard deduction and expands the child tax credit while repealing distortionary deductions and credits in favor of broad tax reduction. It also repeals the Alternative Minimum Tax and the Death Tax.
After these many changes, the tax plan comes out as distributionally neutral, meaning people at all income levels see a reduction in the amount and portion of their dollars paid in taxes. This isn't just rhetoric: In 2019, Americans in every income category will see a tax cut, according to an analysis by the official government scorekeeper, the Joint Committee on Taxation.
Those making between $20,000 and $30,000 a year see a 13.6 percent reduction in federal taxes. Those making $50,000 to $75,000 see a 7.9 percent reduction, while those making $100,000 to $200,000 see a 6.1 percent reduction. Taxpayers making between $500,000 and $1 million see a 4.3 percent reduction, and those making more than a million see a 6.7 percent reduction in taxes.
This has not stopped many from spreading falsities. Some on the Right claim that Republicans have abandoned conservative ideology by agreeing to tax cuts for some and tax increases for others.
The proof in this, they claim, is the “bubble rate,” which has been mistakenly called a new 46 percent tax bracket.
However, the House GOP bill does not create a new bracket. The bubble rate is simply a phase-out of the 12 percent bracket for those earning between $1 million and $1.2 million.
Phase-outs of exemptions and deductions based on income level have long been a common part of the tax code and currently exist for the child tax credit, the earned income tax credit, itemized deductions, personal exemptions, and other provisions in the tax code.
Bubble rates were also a feature of former President Ronald Reagan’s landmark 1986 tax reform legislation. Even with this phase-out, upper-income earners will see a tax reduction, in part because of the repeal of the Alternative Minimum Tax, which affects 4 million taxpayers every year.
While no individual or family see a tax increase under this plan, the Left continues to claim that this plan overwhelmingly benefits upper-income earners at the expense of everyone else.
After the release of the tax legislation, Senate Democrats claimed a family earning $86,000 per year would face a $794 tax increase. This claim was debunked by the Washington Post’s Fact Checker, which gave it four Pinocchio’s (the worst rank possible).
Similarly, the Tax Policy Center’s distributional analysis of H.R. 1 – which found that “the rich” overwhelmingly benefited from the plan – was retracted hours after it was published because it omitted part of the Child Tax Credit – a key component of middle-class tax cuts.
In reality, middle-class families see significant tax reduction in the House tax plan. A typical family of four will pay $1,182 less in taxes while a couple making $115,000 will pay $1,130 in lower taxes, according to the Ways and Means Committee. Similarly, the Tax Foundation found that after-tax income for a typical middle-class family will increase by $2,598 under this plan.
Despite what some partisans claim, the Tax Cuts and Jobs Act lives up to its name. The evidence is clear – this legislation cuts taxes on Americans of all income levels rather than picking winners and losers as many tax plans have done in the past.
Grover Norquist (@GroverNorquist) and Alex Hendrie are contributors to the Washington Examiner's Beltway Confidential blog. Norquist is president of Americans for Tax Reform. Hendrie is Americans for Tax Reform's director of tax policy.
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