By Alex Hendrie
October 13, 2017
The unified Republican tax reform framework released last month cuts taxes and increases take-home pay for the middle class while simplifying the code for millions of American families.
First, the framework consolidates the existing seven tax brackets into three — 12 percent, 25 percent, and 35 percent, giving rate reduction to all.
In addition, the plan doubles the standard deduction to $24,000 for a family and $12,000 for individuals, meaning this amount is taxed at zero percent, a significant tax reduction for millions of Americans.
This reform represents drastic rate reduction for the 105 million Americans across the country who took the standard deduction in 2015, according to IRS data. More than seven million taxpayers in Florida, nine million taxpayers in Texas, and three million in Michigan and North Carolina benefit from this tax reduction. These numbers also understate the number of taxpayers who will benefit as the increased standard deduction becomes more attractive for taxpayers.
This is not the only reform in the framework that helps American families. The plan calls for expanding the child tax credit, benefiting more than 22 million families across the country that used this credit in 2015, including more than 500,000 families in New Jersey, 800,000 families in Ohio, and 2.7 million families in California.
Similarly, the repeal of the AMT gives tax relief to almost 4.5 million American families that paid the tax in 2015. More than half a million taxpayers in New York, 250,000 taxpayers in Texas and 166,000 taxpayers in Pennsylvania are hit by the AMT.
Clearly, there are millions of Americans that benefit from the Republican tax reform framework, even before considering other changes in the framework.
Despite this, the plan has been attacked by some who claim the plan doesn’t benefit American families. For instance, a report released by the liberal Tax Policy Center claims that middle-class families will see little if any tax relief, and many will face a tax increase.
However, this analysis fails to account for several factors. First, it assumes many specific details such as the income threshold for the consolidated tax brackets and the size of the child tax credit. For instance, the TPC report assumes a child tax credit of just $1,500, even though two advocates of the child tax credit, first daughter Ivanka Trump and Senator Marco Rubio, have proposed a child tax credit of $2,500.
Even using the biased assumptions of the TPC, the framework is a significant tax reduction for families, as noted by Ryan Ellis writing for Forbes. After modeling three median income American families, Ellis found that each one came out better off from the GOP framework than they currently are.
The TPC study also fails to use any kind of dynamic scoring in its analysis. In large part, the tax reform framework is a jobs bill and many of the reforms to business taxes, like lower competitive rates for businesses and implementation of 100 percent expensing, are aimed at creating new or better jobs for Americans and increasing take-home pay for families through stronger economic growth.
Without dynamic scoring, an analysis of the GOP tax framework is incomplete because it does not account for changes in behavior that result from tax changes. Dynamic scoring has increasingly become the norm as a more accurate way to measure tax changes. While it is far from perfect, dynamic scoring can properly account for changes, like a reduction of the corporate tax.
Many studies have concluded that around 75 percent (and possibly even more) of the corporate tax is borne by labor, meaning a reduction in this tax as the framework proposes, also benefits American workers.
In fact an analysis by the Tax Foundation estimates that going to a 20 percent corporate rate creates the equivalent of 641,000 jobs and boosts income by three percent, or almost $1,700 per family based on 2015 median income. Failing to use dynamic scoring, as the TPC study does, means that the true benefits of the Republican framework are obscured. Any true analysis of the tax plan’s effect on individuals needs to include the benefits business changes have to the economy.
By any measure, the middle class is the winner of this tax reform plan. Under the unified framework released last month, American families will see tax cuts, tax simplification, new or better jobs, and more take-home pay.