I’m seeing claims from some conservatives and libertarians that the tax cut is not only not tilted toward the rich, but is actually tilted toward the middle class. The first claim is defensible, the second less so.
Let’s take a broad definition of the middle class, including households from the 20th to the 80th percentile of income. According to the Census Bureau, those households have incomes ranging from $24,000 to $121,000. According to the Joint Committee on Taxation (JCT), households making between $20,000 and $30,000 pay 0.7 percent of all federal taxes now and will pay 0.8 percent of them under this law in 2025 (when the tax cut is fully implemented and none of it has expired). Their tax cut is basically proportional to their share of taxes paid.
And that’s true of the rest of the income groups in this broad middle-class range. Households making $30-40,000 pay 1.3 percent of federal taxes now and will pay 1.4 percent of them in 2025. Households making between $40,000 and $75,000 will see their share of federal taxes unchanged at 10.2 percent. (This group roughly corresponds to a stricter definition of the middle class, that is, people in the 40th to 60th percentiles of income.) In the $75,000 to $100,000 range, the share drops from 8.6 to 8.5 percent. The JCT doesn’t subdivide households making between $100,000 and $200,000: The total group goes from a 29.3 percent share to a 20.1 percent share.
For all of these groups — making between $20,000 and $200,000 — the share of federal taxes goes from 50.1 percent to 50 percent. In other words, the tax cut reduces tax burdens proportionally.
The only way you can say that the tax cut actually favors these middle-class households is by looking only at income taxes. For a lot of middle-class households, the payroll tax is bigger than the income tax. So ignoring the payroll tax will change the outcome of the analysis. Some conservative and libertarian analysts have offered justifications for ignoring it, but not, I think, persuasive ones. The payroll tax is a tax that lowers incomes, just like the income tax; it goes to the federal government, just like the income tax; legislation can alter the payroll tax, just as it can alter the income tax. Both taxes ought to be included in analyses of the federal tax burden.
Correction: Phil Kerpen rightly points out that I used the wrong JCT chart. Sorry about that! Using the right one doesn’t make a material difference though. With the broad definition of the middle class, its share of the total federal tax burden drops from 50.1 to 49.7 percent. Using the narrow definition, its share drops from 10.2 percent to 10 percent. I think it is fair to say these are not significant changes.