The Corner

Economy & Business

Yes, the Tax Cut Does ‘Tilt towards the Middle Class’

In response to The Week

Ramesh writes that, contrary to what some have said, the middle class does not get a relatively bigger cut under the tax plan. He uses numbers from the Joint Committee on Taxation (JCT) redistribution tables, which show that “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,” and they include the Affordable Care Act (ACA) subsidy reduction! This has a big impact.

I am surprised that Ramesh uses these numbers so uncritically. Of course, as presented by JCT and under the committee’s methodology, these numbers are correct. However, they do not represent the best measure of the impact of tax reform. For one thing, these numbers look at the overall federal tax burden (including payroll taxes), but payroll taxes are not being changed and should be excluded from JCT tables. As Chris Edwards has noted, income-tax cuts should be compared to income taxes currently paid.

The other problem with using the JCT table Ramesh used is that it includes the reduction in Obamacare-spending subsidies. A cut to spending subsidies is not an increase to taxes.

The JCT produced, but did not publish on its website, tables that show the effect of the tax cuts without the Obamacare-subsidy change. If Ramesh had looked at the JCT redistribution tables without the ACA subsidies, he would have seen that those taxpayers making between $20,000 and $30,000 get the biggest cuts under the plan — an 11.4 percent reduction in their taxes in 2025.

There is a real problem with JCT transparency. If someone as well-informed as Ramesh misreads these tables because of the way they are presented and the fact that the committee doesn’t publish all its tables include the table showing the changes without the payroll tax — which is more neutral when looking at the impact of an income-tax reform — you know you have a problem on your hands. Of course, Republicans should be asking the JCT for more transparency, but for some reason, even though the scoring process always ends up causing a problem for them, they don’t.

Chris Edwards has a great write up at Cato on how the middle class will benefit from this bill.

Update: Here is the JCT table mentioned above.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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