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Virtually All Middle Class Taxpayers to See Tax Cut in Senate Tax Plan

By Ryan Ellis

<$200k Fam. % Tax Cut to <$100Tax % Tax Hike Tax Hike Households

Tax Hike Cut Fam.

2019 166,084,000 91.7% 152,300,000 8.3% 13,800,000

2021 167,834,000 90.7% 152,200,000 9.3% 15,600,000

2023 169,879,000 87.9% 149,300,000 12.1% 20,600,000

2025 171,903,000 87.6% 150,600,000 12.4% 21,400,000

2027 173,959,000 88.9% 154,700,000 11.1% 19,300,000

Source: Joint Committee on Taxation data

There’s a report out today from Senate Finance Democrats about who gets tax cuts and who gets tax increases in the Senate healthcare plan. It highlights that, depending on the year, between 13.8 million and 21.4 million taxpayers making less than $200,000 will see a tax increase. These numbers are selective and should be taken with a grain of salt (pardon the pun) for the following reasons:

  • No tax reform plan can control for every single tax return. Under the Senate plan, over 90 percent of <$200,000 families will see tax relief (or no change) in 2019 and 2021, according to the JCT’s own data. The Senate tax plan is well targeted to help middle class families, as shown by how high the number of tax relief families there are in the middle class. Most tax reform plans would not fare so well. Any supporter of the flat tax, the FAIR Tax, the Rubio-Lee tax reform plan, or the Rand Paul or Ted Cruz presidential election year plans would face the same problem, if not worse.

  • The table assumes that full business expensing expires after five years, which is very unlikely and is not Congressional intent. That’s why there is a spike from 2021 to 2023. A current policy baseline would show a pretty constant 90 percent of middle class taxpayers getting relief.

  • What’s causing the tax increases in those few households that see it? It’s not clear from the data. However, a very good educated guess is that these households have a very high state and local tax (SALT) burden. There is nothing else in the Senate tax bill which might adversely impact these middle class households–there is a higher standard deduction, a bigger child tax credit, rates are lower, AMT is repealed, small businesses get relief, etc. All that’s left is taking away SALT. As a reminder, SALT taxpayers overwhelmingly live in Democrat states, which is undoubtedly the impetus behind this data dump. Keeping the SALT deduction is the number one priority of Senate Minority Leader Chuck Schumer (D-N.Y.)

UPDATE: In an opening statement today, Senate Finance Committee Chairman Hatch had this to say:

[T]here was the repeated claim – supposedly based on JCT analysis – that the bill is a massive tax HIKE on the middle class. To reach this conclusion, members had to willfully twist the meaning of JCT data. Specifically, members cited a JCT table concluding that some in the middle class may see a tax increase under the bill, while those same members completely ignored the fact that the very same data showed that the vast majority of middle class taxpayers – about 90 percent – were either going to get a tax cut or, at the very least, be held harmless under the bill. Yesterday, I mentioned a tax bill introduced by the Ranking Member a few years back. I noted that there were a number of similarities between his previous bill and the one we’re debating today. However, there are some differences. For example, I’m not aware of any JCT distributional analysis on the Wyden-Coats tax bill, but the Tax Policy Center did look at some of the potential distributional effects of the Ranking Member’s bill when he introduced it with former Senator Gregg. Interestingly enough, TPC found that close to 25 percent of middle-income taxpayers would have gotten tax increase under Wyden-Coats, and around 17 percent of the lowest income earners would have seen their taxes raised. Now, I don’t raise this to play tit-for-tat. And, I do think there are reasons to not consider analyses by outside think tanks to be the gospel when it comes to these matters. But, I do think it’s fair to note, for the record, that the Ranking Member, in the relatively recent past, authored and championed tax reform legislation that, according to the standards he and others have used to criticize the current bill, was far more problematic and, according to a think tank often cited by members on the other side, would have raised taxes on far more middle- and low-income taxpayers than the legislation we are considering this week.

Learn more here.

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