The Corner

Politics & Policy

‘Taxes Would Fall for All Income Groups on Average’ Says Tax Policy Center

The Tax Policy Center has corrected and reissued their previously withdrawn analysis of the “Tax Cuts and Jobs Act” currently in Congress.

Their new preliminary analysis estimates a “decline on average across all income groups” in taxes, of an average of almost 1.6 per cent of after-tax income in 2018 and or 0.7 per cent of after-tax income in 2027. TPC estimates a larger cut than the Tax Foundation does, however the Foundation is currently revising their report as they discovered a calculation error, so final predictions may converge.

The report also estimates that 7 per cent of taxpayers would face increased taxes in 2018 under the plan, while at least 25 per cent would in 2027. It suggests that this will be due to the effect of changes to itemized deductions, as they predict the number of taxpayers who itemize would drop by 75 per cent in 2018 and 65 per cent in 2027. This could result in considerable simplification in the tax process, which could reduce the costs associated with compliance — and consequently reroute people and capital towards more productive tasks.

The effect of the bill on deficits remains a concern and this new Tax Policy Center does not address them, as it is specifically an analysis of the tax burden.

The Tax Foundation estimates that resultant economic growth would greatly increase tax revenue, but as noted before, they withdrew their current paper to correct calculations and are estimating that the new paper will predict lower economic growth than the previous one.

Simplification of the tax code is essential, and reforms to the corporate tax follow a long consensus among economists of all political stripes. It is also essential that these be carried out with long-term fiscal stability in mind. The CBO predicts a $1.7 trillion increase in the deficit over ten years, if the plan is implemented, and a recent Wharton study that accounts for variations in the final policy estimates an increase in deficit of at least $1 trillion to $3.5 trillion.

Even in the best case scenario, where the lowest deficit estimate is coupled with the Tax Foundation’s now-withdrawn revenue increase estimate, the numbers do not even break even.


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