Taxpayers in the wealthiest 1 per cent of US households stand to receive nearly half the benefit of the Republicans’ tax overhaul by 2027, according to a think-tank.
Their after-tax incomes would likely be boosted 2.2 per cent, while lower income taxpayers would see little change, according to new analysis of the House of Representatives’ tax reform bill by the Tax Policy Center. Those in the middle would see a 0.4 per cent lift.
The analysis will be drawn on by Democrats seeking to attack the House Republican’s proposals as a handout to wealthier households. While Republicans led by President Donald Trump have been branding the tax effort as a boon to the US middle class as well as a big lift to investment, job creation and economic growth, the Democratic party has savaged the proposals as a fillip to the rich.
Mark Mazur of the Tax Policy Center said the bill amounted to a “modest tax cut for most households and a fairly large tax cut for people in the top of the income distribution”.
It was not surprising that the benefits were tilted to higher income people, he said, because they would see gains from measures such as the proposed repeal of estate tax — which only hits a tiny handful of super-wealthy households. They also gain because of the cut in corporate tax from 35 per cent to 20 per cent. The latter is generally seen as something that disproportionately helps shareholders, who tend to be better-off, although the White House has been touting possible wage benefits for ordinary workers.
In addition, the new lower tax rate on smaller businesses and other so-called pass-through entities will help business owners. “You have a number of provisions that benefit higher income individuals in the out-years,” Mr Mazur added.
The TPC report does not incorporate possible growth effects from the tax reforms into its analysis. Republicans accordingly place much more store in an earlier report from the Tax Foundation, which emphasises growth benefits stemming from the reforms. That think-tank’s report on the House’s tax bill found wages would be lifted 3.1 per cent, with 975,000 new full-time equivalent jobs created.
Its so-called “dynamic” score showed far more evenly distributed gains from the tax overhaul. All groups of taxpayers in its main analysis enjoyed income gains ranging upwards from 3.6 per cent, with all of the main quintiles seeing a lift exceeding 4 per cent.
Separate analysis from Congressional scorekeepers on the Joint Committee on Taxation has showed the tax bill would deliver an immediate tax cut for all income groups. But it also found that families earning from $20,000 to $40,000 and those on between $200,000 and $500,000 would pay more in individual taxes from 2023 onwards.
For Republicans, one of the more worrying outputs from the Tax Foundation report was a finding that their plan would reduce federal revenues by $1.98tn over a decade, or by $989bn once growth effects were added into the equation.
The Congressional Budget Office concluded on Wednesday that the House’s tax bill would raise the deficit over 10 years by $1.7tn once additional debt servicing costs were included, but excluding the macroeconomic effects.
Further projections released on Wednesday by the Committee for a Responsible Federal Budget, a think-tank, found the plan would add $155bn to the deficit in 2028 alone, which would be a “significant” violation of the Senate Byrd rule. That will concern deficit hawks who have been insisting the tax overhaul does not add to government debt.
House lawmakers on the powerful ways and means committee were debating the tax bill on Monday as they drilled into the details of the proposals. The Senate has yet to release its own version of the tax reforms.
The Tax Policy Center originally published a version of the report on Monday, but retracted its estimates within hours of release, citing an error in its analysis of the plan’s child and family tax credit. The original projections underestimated the average tax cuts for low-income and middle-class taxpayers.
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