By Ryan Ellis
There has been a lot of talk recently about a Tax Policy Center analysis of the GOP tax framework. The report language says that the framework would blow a giant hole in the deficit and cut taxes for the rich. Because of course it does. It would be shocking if such a report did not, given that this is the same group that the media and Democrats routinely use to trash every Republican tax plan.
The fact is, the Tax Policy Center and anyone else doing so is guessing on several key inputs prior to doing any analysis:
Bracket depth. We know there will be three brackets (12%, 25%, 35%), but we don’t know what the taxable income thresholds will be.
Fourth bracket. The framework anticipates that the Congress may need to add a fourth, higher tax bracket as the sausage gets made and the numbers get harder to score. This is left out entirely from the TPC analysis.
Child tax credit. The framework simply says the child tax credit will be increased. There have been proposals to raise it from $1000 today to, variously, $1500-$2500.
Head of household status. The framework is silent on the single parent status, head of household. Will it exist? What will the bracket depths be if it does? What will the standard deduction be if it does? What will the child tax credit income tax phaseout be if it does?
Static analysis. It should go without saying that the TPC doesn’t take into account the effects of potentially higher economic growth on personal income such as wages.
But, just to show I’m a good sport, I am going to accept each and every one of the Tax Policy Center’s assumptions and run a tax return for three median income Americans: a median income married couple with two small children; a median income single mother with two small children; and, a median income single woman. The source for median income for each comes from the Census Bureau.
Like the Tax Policy Center, I will use the 2017 tax bracket, standard deduction, personal exemption, and child tax credit levels as my starting point. To compare, I will use the tax brackets, standard deduction, and child tax credit the TPC assumes (but cannot know) about the GOP framework.
Scenario 1: Mike and Joan, the median income married couple with two small kids
Mike and Joan are married and have two small children (under age 14). They earn the median income for a married couple, $87,000. Here’s how they fare under current law and the new plan: Current Law GOP Framework
Adjusted Gross Income $87000 $87000
Standard Deduction ($12700) ($24000)
Personal Exemptions ($16200) ($0)
Taxable Income $58100 $63000
Tax Before Credits $7783 $7560
Child Tax Credits ($2000) ($3000)
Tax After Credits $5783 $4560
TAX CUT – $1223
Mike and Joan will receive a $1223 tax cut under the GOP Framework, using Tax Policy Center’s own assumptions. With an extra $1223, Mike and Joan could take their family on a vacation, save a little for college, or buy a new refrigerator.
Scenario 2: Helen the single Mom and her two small kids
Down the street lives Helen, a single mother with two small kids. She works very hard to get by, earning the median income of $41,000 typical of a female head of household with no husband present. Let’s see how she does.
Current Law GOP Framework
Adjusted Gross Income $41000 $41000
Standard Deduction ($9350) ($18000)
Personal Exemptions ($12150) ($0)
Taxable Income $19500 $23000
Tax Before Credits $2258 $2760
Child Tax Credits ($2000) ($3000)
Tax After Credits $258 ($240)
TAX CUT $498
Helen gets a tax cut of nearly $500. Not only that–her tax cut is large enough to take her off the income tax rolls entirely. That’s right, the GOP framework is so generous to single moms with kids that it takes the median example off the tax rolls.
Scenario 3: Sally the single girl
Sally also lives on the block. She’s a single taxpayer, but is hoping to change that someday. For now, she is earning the median income for a single person, $36,000. How does Sally do?
Current Law GOP Framework
Adjusted Gross Income $36,000 $36,000
Standard Deduction ($6350) ($12000)
Personal Exemptions ($4050) ($0)
Taxable Income $25,600 $24,000
Tax Before Credits $3374 $2880
Child Tax Credits ($o) ($0)
Tax After Credits $3374 $2880
TAX CUT $494
That’s almost another $500 for Sally. Wisely, she decides to put this money in a Roth IRA for her retirement. This is a smart decision, since any growth in her Roth IRA will be tax free for retirement.
Here’s the bottom line: the Tax Policy Center and their cheerleaders can hide behind class envy and flimsy assumptions all they want. The fact is, when their own guesstimates are applied to three of the most typical financial outlooks for Americans, all three families come out ahead. The tax cut for the middle class is real, and that’s no fake news.
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