There are plenty of understandable objections to the tax bill sailing through Congress. Some people think it will increase the deficit. Others cry foul that it is being rushed through without sufficient deliberation. And there are those who like big government and frankly oppose the idea of letting people and, most especially, companies keep more of the money they earn.
There are rejoinders based on facts to all of these points, and such debates should play a central role through the 2018 midterm elections.
But one shopworn theme should be banished from the discussion because it is as false as it is dishonest: the notion that the Republican bill punishes the middle class to aid the wealthy.
Class envy in these populist times presumably polls well. But in the case of the bills that the House and Senate actually passed, any statement that the poor and middle class will see their taxes rise is incorrect. And the proposition that the burden of taxes will shift away from the rich is laughable. Although the information is readily available, estimates of the tax bill’s effects on U.S. income groups have mostly been ignored in media coverage. When the data are used, they are often cherry-picked to create familiar impressions.
As the 2017 bill moves into reconciliation, it is worth recalling how it meets tax reform’s several objectives. To boost the economy, the bill lowers corporate taxes from 35 percent to an internationally competitive rate of 20 percent—and offers incentives for business investments. To simplify the tax code, it eliminates or limits many deductions. To return money to taxpayers, it reduces individual rates. There is much else in the details, but these are the key features. The House and Senate are working to harmonize the two bills’ differences, pass a compromise version, and have it on the president’s desk by the end of December.
To make the bill conform to Senate budgetary rules, Republicans have had to make some of the changes temporary. The corporate tax cut is permanent, but many of the provisions that lower individual taxes will expire over 10 years. That’s because economists say making corporate cuts permanent provides the certainty that stimulates investment, which in turn boosts the economy. And Republicans are betting that future Congresses would not allow individual taxes to rise when the cuts expire—much as President Obama and a Democratic Congress extended the Bush tax cuts in 2010. It is a budgeting gimmick, yes. But both parties have successfully used such ruses in the past.
Contrary to public perception, the bill will cut taxes for the majority of Americans at every income level. According to data from Congress’s Joint Committee on Taxation (JCT), overall in 2019 under the Senate bill, 62 percent of taxpayers would see a tax cut of $100 or more, 30 percent would have their taxes change less than $100, and 8 percent would pay more than $100 more. A separate analysis by the left-leaning Tax Policy Center predicts that just 9 percent of taxpayers will see a tax increase in 2019.
A full 80 percent of households making $50,000 to $75,000 would receive a tax cut, according to JCT data, as would a similar percentage at all income levels above $75,000. While still far more likely to have their taxes cut than raised, those below $50,000 in income are more likely to see no change to their taxes than wealthier groups. They simply pay less in taxes to begin with and so are less affected by changes in the tax code.
The reality that large majorities of Americans at all income levels would pay less in taxes under the GOP plan has not discouraged Senate Democrats from making loud claims that the middle class is under assault. Joe Donnelly (D-Ind.) called the bill a “partisan tax hike on Indiana’s middle class.” Claire McCaskill (D-Mo.) claimed the bill is “not helping teachers and police officers and construction workers.” Chris Van Hollen (D-Md.) darkly intoned that the vote “robbed millions of middle class Americans to give giant tax cuts to corporations” and, the senator added in a nativist flourish, to “many foreign stockholders.”
It is true that not everybody receives a cut. One of the goals has been to simplify the tax code, and people who claim a lot of deductions on their returns could face bigger tax bills. You probably haven’t heard that the group most likely to pay higher taxes is millionaires—about 19 percent of them would be looking at a tax hike in 2019.
In some cases, opponents are drawing on the analysis of what happens a decade from now when the reduction in individual tax rates expires. This would result in tax increases for income groups under $75,000 in 2027. While trumpeting that effect might sound reasonable, the odds of a future Congress allowing taxes to rise on the middle class are long. Republicans are already on the record promising to make those cuts permanent in future years. But Democrats are still criticizing the bill for letting the tax cuts on the middle class expire: “And 10 years from now, millions and millions of middle-class Americans will be paying more in taxes,” lamented Senator Bernie Sanders (I-Vt.).
If Republicans were trying to design a tax bill to transfer the federal tax burden from the rich to the middle class, they failed. Under current law, taxpayers with incomes of $200,000 or more are on track to pay 49.6 percent of federal taxes in 2019, according to JCT data. Under the GOP tax bill, the figure remains the same: exactly 49.6 percent. In 2021, it rises to 49.9 percent. It then ticks down slightly, as temporary cuts expire, and bottoms out at 49.5 percent in 2027—which, again, assumes future Congresses don’t act to maintain the individual rate reductions in the next decade. That those numbers are so similar suggests that the tax cuts are proportional to income. The rich receive the most benefits, as critics say, but it’s because they pay the most in taxes. The average multimillionaire would still pay $318,000 in federal taxes for every $1 million in income in 2027, according to JCT data.
All the misinformation seems to be leaving voters skeptical. In a Quinnipiac poll released in early December, voters disapproved of the tax plan 53 percent to 29. By a nearly two to one margin, they further said the plan favors the wealthy at the expense of the middle class. Interestingly, 41 percent said they expected their taxes to increase under the plan—even though nonpartisan estimates from the government and outside groups place the correct figure at 8 or 9 percent.
Congressional Republicans are poised to pass a tax reform that will help the economy and cut taxes for the majority of Americans. It’s time they got the message out.
Tony Mecia is a senior writer at THE WEEKLY STANDARD.
