Under Trump’s Plan, Tax Cuts Shrink Over Time for Everyone but the Richest

The nonpartisan Tax Policy Center released a preliminary analysis of President Trump’s tax plan on Friday, showing that the proposed tax cuts would get smaller over 10 years for all but the top 1 percent of earners. Some major findings:

Most, but not all, taxpayers would
get a moderate tax cut next year.

While most taxpayers would benefit at least modestly, taxes would increase for others, particularly those with incomes of $150,000 to $300,000. The increases would primarily come from the repeal of several itemized deductions, such as the state and local tax deduction.

Average

tax change

Income

TAX CUT

NO CHANGE

INCREASE

Lowest quintile

71% of taxpayers

–$60

Less than $25,000

Second quintile

88%

–$290

$25,000 – $48,600

Middle quintile

85%

–$660

$48,600 – 86,100

Fourth quintile

79%

–$1,110

$86,100 – 149,400

80-90 percentile

67%

–$1,140

$149,400 – $216,800

90-95 percentile

60%

–$1,500

$216,800 – $307,900

95-99 percentile

74%

–$7,620

$307,900 – $732,800

Top 1 percent

89%

–$129,030

$732,800 and up

Top 0.1 percent

98%

–$722,510

$3,439,000 and up

Note: Income quintiles are based on cash income and contain an equal number of people.

These estimates could change significantly based on how policymakers fill in the details of the president’s proposal. The analysts made several assumptions, including the income thresholds for each marginal tax rate, which are based on on the 2016 House Republican plan, and the amount that the child tax credit would increase.

The analysts also assumed that the top marginal tax rate would be 35 percent, though the president’s proposal left room for an additional, higher rate. If a higher rate is adopted, the wealthiest taxpayers would not benefit as much from the plan.

The top 1% would benefit
far more than everyone else.

Change in tax

rate (pct. pt.)

Change in

after-tax income

Income

Lowest quintile

–0.4%

+0.5%

Less than $25,000

Second quintile

–0.8

+0.9

$25,000 – $48,600

Middle quintile

–1.0

+1.2

$48,600 – 86,100

Fourth quintile

–1.0

+1.2

$86,100 – 149,400

80-90 percentile

–0.6

+0.8

$149,400 – $216,800

90-95 percentile

–0.6

+0.7

$216,800 – $307,900

95-99 percentile

–1.7

+2.3

$307,900 – $732,800

Top 1 percent

–5.7

+8.5

$732,800 and up

Top 0.1 percent

–6.8

+10.2

$3,439,000 and up

Note: All estimates are averages.

The bottom 99 percent of taxpayers would see their federal tax rates drop 0.4 to 1.7 percentage points on average next year. But the top 1 percent would benefit much more, with average tax rates falling by 5.7 percentage points. Gains are even higher for the top 0.1 percent, or people with income higher than $3.4 million.

The top 1 percent would also pay a smaller proportion of all federal taxes next year, 23.5 percent compared with 26.1 percent under current law.

And the tax cuts would shrink by
2027, except for the wealthiest.

By 2027, tax cuts would shrink for every group except the top 1 percent, and a quarter of taxpayers, many in the upper middle class, would pay more than they would without the new plan.

For example, taxpayers with incomes of about $150,000 to $215,000 would receive, on average, a $1,140 tax cut in 2018. But in 2027, they would pay $820 more than if nothing changed.

There are a few reasons that the tax cuts shrink over time. The expanded tax credits for dependents are not indexed for inflation, so their value would decrease in the coming years. In addition, tax brackets would be indexed to a slower measure of inflation, meaning that by 2027, more income would be taxed at higher rates.

The plan would cost $2.4
trillion over 10 years.

The single biggest cost would be reducing the corporate tax rate and repealing the corporate alternative minimum tax, which would total $2 trillion.

Individual provisions
Change in revenue, in trillions
Tax rates of 12, 25, and 35%
−$1.2
Increase standard deduction
−$0.8
Repeal alternative minimum tax
−$0.4
Increase child credit and add dependent credit
−$0.3
Repeal most other itemized deductions
+$0.2
Index tax system to chained Consumer Price Index
+$0.1
Repeal state and local deduction
+$1.3
Repeal personal exemptions
+$1.6
Subtotal
+$0.5
Business provisions
Reduce corporate rate to 20% and repeal the A.M.T.
−$2.0
Limit tax rate on pass-through income to 25%
−$0.8
Expensing of equipment through 2022
−$0.2
Enact territorial tax system
−$0.1
One-time tax reduction to encourage repatriation
+$0.2
Repeal certain business tax expenditures
+$0.2
Subtotal
−$2.6
Repeal estate and related taxes
−$0.2
Total
−$2.4
Note: Numbers may not add due to rounding. The report’s authors did not include the revenue impact of some provisions, like limiting the corporate deduction for net interest.

The business tax cuts are estimated to cost $2.6 trillion over 10 years, while revenue from individual income taxes would actually increase slightly. The Tax Policy Center analysis does not include the plan’s potential impact on economic growth, which Republicans have said will help pay for the tax cuts. The report said it expected any economic effects on revenue to be minimal in the first decade.

Senate leaders on Friday released a budget blueprint that, if approved, would allow for a $1.5 trillion tax cut over the next decade — much smaller than the estimated cut in the president’s plan.

Courtesy, The New York Times

Published by

gabugo

Author, Pastor, Development and Valuation Surveyor, CEO LandAssets Consult Ltd., Publisher, The Property Gazette.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s