Who Will Benefit The Most? : NPR
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President Trump and congressional Republicans have pitched their tax plan as a boost for the middle class.
“The rich will not be gaining at all with this plan,” Trump told reporters during a meeting with lawmakers in mid-September.
But analysts at the nonpartisan Tax Policy Center who studied the proposal reached a very different conclusion. They predict that nearly three-quarters of the savings from the tax overhaul would go to the top 20 percent of earners — those making more than $149,000. More than half the savings would go the top 1 percent — people who earn more than $732,800. The tax breaks are even more tilted to the wealthy by the 10th year of the overhaul, when the Tax Policy Center projects nearly 80 percent of the savings would go to the top 1 percent of earners.
Administration officials have tried to discredit the center’s analysis, noting the tax plan is so far just a framework with many of the details still to be filled in by Congress.
“All I can tell you is that no one can make real detailed analysis of the plan yet, because it’s not finished,” White House budget director Mick Mulvaney said Sunday on CNN’s State of the Union.
The Tax Policy Center analysts acknowledge having to make some assumptions as they did their review. They based those assumptions on reasonable sources, including past Republican tax blueprints and the administration’s own April outline.
The center has promised to revise its forecast as lawmakers fill in the blanks of the tax plan. But the big picture is not likely to change.
“It’s going to be hard to mold this into something where the middle class is the big winner. And the reason for that, or course, is that the upper-income earners are those that pay the most in taxes,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “If you’re going to reform the tax code, a lot of times it’s going to be the people who pay the most taxes who end up with those bigger breaks.”
Wins for middle class appear largely indirect
The tax benefits for the rich in the GOP plan are direct, obvious and easily quantified. Many of the promised benefits for the middle class, on the other hand, are indirect, speculative and uncertain.
For the wealthy, the government is promising to cut their tax bill directly, by offering a lower income tax rate and by doing away with targeted levies such as the alternative minimum tax and the estate tax. The AMT hits only upper-income taxpayers and the estate tax hits only people with nearly $5.5 million in assets (or nearly $11 million for married couples). The Tax Policy Center says eliminating those taxes provides a direct, $678 billion benefit to top earners over the next decade.
Many middle-class families would also benefit from a lower income tax rate, but their savings would be dwarfed by those the wealthy enjoy. The Tax Policy Center estimates the average middle-class taxpayer would get a break of $940 from the GOP plan next year, while a taxpayer in the top 1 percent would save $146,470. For those on the lower rungs of the income ladder, the Republican plan actually boosts the tax rate from 10 to 12 percent.
“This is a GOP tax plan?” tweeted an incredulous Sen. Rand Paul, R-Ky., on Monday, noting the Tax Policy Center’s projection that nearly 30 percent of middle-class families could see their tax bills rise by decade’s end. “I hope the final details are better than this.”
So how do the tax plan’s supporters claim that it’s focused on the middle class? By highlighting speculative, indirect gains that are supposed to result from economic growth.
“This is a revolutionary change,” Trump said in announcing the plan in Indiana last week. “The biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor, and as wages start going up at levels that you haven’t seen in many years.”
House Speaker Paul Ryan, R-Wis., makes a similar claim. “This is a once in a lifetime opportunity that is all about more jobs, fairer taxes and bigger paychecks for American families,” Ryan told reporters.
Rather than simply promise that the government will cut the tax bill for working families — many of whom pay little income tax already — the GOP is arguing that its tax plan will promote growth, which in turn will boost employment, and over time result in higher wages. Break any link of that chain and the middle-class “winnings” end up in someone else’s pocket.
Cut to corporate tax rate
A centerpiece of the GOP plan is a deep cut in the corporate tax rate, from 35 percent to 20 percent. The Tax Policy Center estimates that provision, along with repeal of the corporate AMT, would save corporations nearly $2 trillion over the next decade. Where would that money go? Traditionally, it’s been assumed that most of the savings of a corporate tax cut go to business owners or shareholders, who tend to be upper-income. But some portion also goes to workers in the form of higher wages. How those spoils are divided determines the big winner when corporate taxes are reduced.
Forecasters at the Congressional Budget Office and the Joint Committee on Taxation, for example, assume that about three-quarters of the savings from a corporate tax cut goes to shareholders, while the remaining one-quarter goes to workers. Until recently, the Treasury Department assumed a similar breakdown, with owners taking the lion’s share and workers receiving about 18 percent.
The Trump administration argues that a much larger share of corporate tax cuts — 70 percent or more — will ultimately flow to workers. That’s far from a consensus view, but it’s the position advocated by Kevin Hassett, an economist formerly with the conservative American Enterprise Institute who now chairs Trump’s Council of Economic Advisers. If Hassett is correct, that would shift more of the $2 trillion in savings from the corporate tax cut down the income ladder, from wealthy shareholders to middle-class employees.