GOP Rolls Trump Backed Tax Cuts and Jobs Act Though House, Senate Next

by Ike Obudulu Posted on

Washington, DC, USA : By a vote of 227-203, the U.S. House passed the final version of Republicans’ $1.5 trillion tax overhaul on Tuesday afternoon. Senate Republicans are now set to debate the bill and could vote Tuesday evening.

The House vote fell largely along party lines. No Democrats voted in favor of the bill, as was the case when the House passed its initial version of the bill in November. Twelve House Republicans voted against the bill.

The bill will cut the top federal corporate tax rate drastically, from 35 percent to 21 percent, and also lower tax rates for many other Americans. According to a new report from the nonpartisan Urban-Brookings Tax Policy Center, those tax cuts would overwhelmingly benefit the richest Americans.

The revised and final Tax Cuts and Jobs Act, TCJA , bill would reduce taxes on average for all income groups in both 2018 and 2025. In general, higher income households receive larger average tax cuts as a percentage of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution. This is according to an estimate by Urban-Brookings Tax Policy Center.

On average, in 2027 taxes would change little for lower-and middle-income groups and decrease for higher-income groups. Compared to current law, 5 percent of taxpayers would pay more tax in 2018, 9 percent in 2025, and 53 percent in 2027.

The bill would also repeals the Affordable Care Act’s (ACA) individual mandate, but the distributional
estimates presented here do not include the effects of that provision.

The pattern of tax changes across income groups would be similar in 2025 (the last year before nearly all the individual provisions sunset) although the magnitude of average tax decreases would be slightly smaller for most income groups.

In 2027, the overall tax reduction would be just 0.2 percent of after-tax income. On average, relative to current law, low- and middle-income taxpayers would see little change and taxpayers in the top 1 percent would receive an average tax cut of 0.9 percent of after-tax income.

Some taxpayers would pay more in taxes under the proposal in 2018 and 2025 than under current law: about 5 percent of taxpayers in 2018 and 9 percent in 2025.

In 2027, however, taxes would increase for 53 percent of taxpayers compared with current law.

In 2018, taxes would be reduced by about $1,600 on average, increasing after-tax incomes 2.2 percent. Taxes would decline on average across all income groups. Taxpayers in the bottom quintile (those with income less than $25,000) would see an average tax cut of $60, or 0.4 percent of after-tax income. Taxpayers in the middle income quintile (those with income between about $49,000 and $86,000) would receive an average tax cut of about $900, or 1.6 percent of after-tax income. Taxpayers in the 95th to 99th income percentiles (those with income between about $308,000 and $733,000) would benefit the most as a share of after-tax income, with an average tax cut of about $13,500 or 4.1 percent of after-tax income. Taxpayers in the top 1 percent of the income distribution (those with income more than $733,000) would receive an average cut of $51,000, or 3.4 percent of after-tax income.

In 2025, the average tax cut would be almost $1,600, or 1.7 percent of after-tax income (table 2). The magnitude of the average tax cut as a share of after-tax income would be smaller in 2025 than in 2018 for most income groups, mainly because the tax system would be indexed to the slower-growing chain-weighted consumer price index and due to the phase-out of certain business tax cuts, and phase-in of certain business tax increases. Taxpayers in the bottom quintile would see an average tax cut of $70, or 0.4 percent of after-tax income. Taxpayers in the middle income quintile would receive an average tax cut of about $900, or 1.3 percent of after-tax income. Taxpayers in the 95th to 99th income percentiles would benefit the most as a share of after-tax income, with an average tax cut of almost $13,000, or 3.2 percent of after-tax income. Taxpayers in the top 1 percent of the income distribution would receive an average cut of about $61,000, or 2.9 percent of after-tax income.

In 2027, the overall average tax cut would be $160, or 0.2 percent of after-tax income (table 3), largely because almost all individual income tax provisions would sunset after 2025. On average, taxes would be little changed for taxpayers in the bottom 95 percent of the income distribution. Taxpayers in the bottom two quintiles of the income distribution would face an average tax increase of 0.1 percent of after-tax income; taxpayers in the middle income quintile would see no material change on average; and taxpayers in the 95th to 99th income percentiles would receive an average tax cut of 0.2 percent of after-tax income. Taxpayers in the top 1 percent of the income distribution would receive an average tax cut of 0.9 percent of after-tax income, accounting for 83 percent of the total benefit for that year.

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Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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