Personal Taxes

Publications – Measuring the Revenue Tax Affect of the Republican Tax Lower and Employment Act

In 2017, President Donald J. Trump and the then Republican Party-controlled Congress passed the Tax Cuts and Jobs Act (TCJA). (Most of its provisions did not come into effect until 2018.)[1]

In a Tax Foundation report released less than a week before President Trump signed the TCJA, the Tax Foundation stated, “The Tax Cuts and Jobs Act would reform individual income tax law by reducing tax rates on wages, investments and business income; Broadening the tax base; and simplification of the tax code. The plan would lower the corporate tax rate to 21 percent and move the United States from a global to a territorial tax system. “[2]

During the legislative debates that preceded the bill’s passage, opponents of the bill – especially Democrats in Congress – argued that TCJA would benefit wealthy households and businesses disproportionately, at the expense of American low- and middle-income families.

For example, MP Nancy Pelosi, who now serves as Speaker of the House, said on November 6, 2017: “Despite empty promises by Republicans to cut taxes on middle-class working-class families, it is clear that the GOP tax plan is for the richest is indeed rich. “[3]

“Republican tax legislation would raise taxes for 12 percent of Americans next year, according to a new report from the bipartisan Tax Policy Center,” added Pelosi.

“The truth is already catching up with the GOP’s snake oil pitch,” concluded Pelosi. “Rather than forcing a deficit-exploding alms-giving to corporations and the rich to raise taxes for millions of hard-working families, Republicans must join the Democrats in working on a non-partisan tax reform that puts the middle class first.”

More than four years after Pelosi’s dire remarks, analysts now have the evidence they need to judge whether the TCJA was really, as Pelosi claimed, nothing more than “snake oil bad luck.” The results are clear and impressive.

According to data from the U.S. Internal Revenue Service, which compares results from 2017 to 2018 – the first year the Tax Reform Act came into effect – the Tax Cuts and Jobs Act reduced the average effective income tax rates for applicants in all income brackets on the IRS. with the greatest benefits going to low- and middle-income households. (See Table 1 by clicking “Download PDF” at the top of this page.)

For example, applicants with an Adjusted Gross Income (AGI) of $ 40,000 to $ 50,000, after accounting for all tax deductions and credits, received an average tax cut of 18.2 percent.[4]

The IRS data also shows that the Tax Cuts and Jobs Act appeared to have had a strong upside effect on economic mobility. The number of applicants with adjusted gross incomes of $ 1 to $ 25,000 decreased by more than 2 million in just one year, while the number of households with incomes greater than $ 25,000 increased across all income brackets.[5]

The most significant increase was in the $ 100,000 to $ 200,000 range, which included more than 1 million additional applicants in 2018 than in 2017.[6]

The IRS data also showed that higher earners paid an even larger share of the total tax burden in 2018 than in 2017, suggesting that the Tax Cuts and Jobs Act may have made tax legislation a little more progressive. This result contradicts the countless statements made by the Democrats over the past four years criticizing the TCJA for legislation favoring wealthier applicants.

In 2017, applicants with incomes of $ 500,000 or more paid 38.9 percent of all personal income tax receipts. In 2018, the same income class paid 41.5 percent of total income tax receipts.[7]

The evidence available is clear: based on 2017 and 2018 tax data, the Tax Cuts and Jobs Act cut taxes for the vast majority of applicants, resulted in a significant improvement in economic upward mobility and disproportionately high levels of working class and middle class households Many of them experienced tax cuts of over 18 to 20 percent.

It appears that Nancy Pelosi’s claims about selling “snake oil” were completely unfounded.

[4] See Table 1, which can be found by clicking “Download PDF” at the top of this page.

[5] See Table 1, which can be found by clicking “Download PDF” at the top of this page. The figure does not include applicants in the “no adjusted gross income” category.

[6] See Table 1, which can be found by clicking “Download PDF” at the top of this page.

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