The Republican tax plan would deliver a major benefit to the top 1 percent of Americans, according to a new analysis by a leading group of nonpartisan tax experts that challenges the White House’s portrayal of its effects.
The plan would deliver far-more-modest tax cuts to most other households — an average cut of $1,700 for households in 2027, according to the report. But the results would be unevenly spread, with 1 in 4 households paying more in taxes.
Despite repeated promises from Republican lawmakers that the plan is designed to provide relief to the middle class, nearly 30 percent of taxpayers with incomes between $50,000 and $150,000 would see a tax increase, according to the study by the Urban-Brookings Tax Policy Center. The majority of households that made between $150,000 and $300,000 would see a tax increase.
Meanwhile, the study found that 80 percent of the tax benefits would accrue to those in the top 1 percent. Households making more than about $900,000 a year would see their taxes drop by more than $200,000 on average.
A spokeswoman for one of the architects of the GOP plan dismissed the report.
“This analysis is based on guesswork and biased assumptions designed to promote the authors’ point of view rather actual detail from a bill that has not yet been written by the committees,” said Antonia Ferrier, spokeswoman for Senate Majority Leader Mitch McConnell (R-Ky.). McConnell was one of the group of “Big Six” Republican lawmakers and White House officials who crafted the plan.
But the report could also highlight divisions in the Republican Party.
“That does not reflect the hopes and aspirations of Main Street Republicans around the country,” said John Weaver, a veteran Republican strategist for Ohio Gov. John Kasich and before that Sen. John McCain (R-Ariz.). “Rewarding the 1 percent, at a time when the gap between the haves and have-nots is at a record high, isn’t wise economically and certainly not wise politically.”
The prediction that the plan would have uneven effects, particularly for people making between $150,000 and $300,000, was credited to the loss of itemized deductions, particularly the ability to deduct state and local property taxes from income.
The loss of the personal exemption, which shields $4,050 of income from federal taxes for every household member, also would play a major role in increasing taxes for some households, the analysis found — an effect that would get worse over time because the amount of the personal exemption kept pace with inflation.
This week at a speech in Indianapolis, Trump described the effects of the tax plan very differently: “We’re doing everything we can to reduce the tax burden on you and your family. By eliminating tax breaks and loopholes, we will ensure that the benefits are focused on the middle class, the working men and women, not the highest-income earners.”
The Tax Policy Center study was based on a number of assumptions that could change, because Republicans haven’t filled in many of the key details of their tax bill. For example, they haven’t said what tax rate will be levied against specific income levels or what the expanded child tax credit will look like. The analysis used tax brackets that were the same as in a 2016 proposal by the House GOP and assumed the child credit was increased to $1,500. It also assumed that wealthy people would reclassify their personal income as business income in order to take advantage of a lower tax rate aimed at helping small businesses, even though the GOP plan said it would introduce measures to prevent that behavior.
Kyle Pomerleau, director of federal projects at the Tax Foundation, said that the results were not surprising given the assumptions, but he noted that the effect on income groups could change as details are hammered out. For example, the plan allows Congress to add a fourth, higher tax bracket above 35 percent that could be used to decrease the tax benefit to the wealthiest households.
However, he noted that the uneven effects of the tax change — with some households paying less and some paying more — are to be expected if there are fundamental changes to policy.
“This is something that occurs in most policies. . . . On net, you want most people to be better off,” Pomerleau said. “But across the board, you can find issues or individuals that might be sightly worse off. It’s almost the nature of tax reform that you can find those cases.”
The analysis also found the plan would provide disproportionately large benefits for businesses compared with what the middle class and low-income Americans would receive.
“A major feature is tax collections would shift dramatically, from businesses to individuals,” said Eric Toder, a co-director of the Tax Policy Center.
The tax plan would increase the deficit by $2.4 trillion over the first decade, the center found. Ed Kleinbard, a law professor at the University of Southern California, said that could pose a major problem, since it is larger than the $1.5 trillion revenue loss that Senate Republicans agreed to earlier this month.
Len Burman, a fellow at the Urban Institute who formerly worked at the nonpartisan Congressional Budget Office, said, “One thing I find troubling about big, deficit-financed tax cuts is it kind of looks like a free lunch.” Burman pointed out that the burden of the postponed taxes could fall on lower- and middle-income people in the future, through tax increases or cuts to programs that benefit those groups. What was surprising, he added, was that even in that context, there were groups that did not appreciate the benefits of that free lunch.
White House officials have given conflicting accounts of the impact of the tax cuts on the wealthy. Trump has said they would receive no benefit, while National Economic Council Director Gary Cohn has said it is irrelevant whether they benefit, because all taxpayers should benefit. Treasury Secretary Steven Mnuchin has said some upper-income Americans will benefit while others won’t. Meanwhile, the nine-page framework released Wednesday predicted the wealthy would benefit but stipulated that they shouldn’t benefit more than anyone else.
Damian Paletta contributed to this report.