Both the House and Senate plans feature some tax cuts for middle-income families, but these tax cuts tend to dissipate with time, even as most of the tax cuts for those at the top do not. What is being sold as a big boon for middle- income families is a bait and switch.
The bait is the upfront tax cuts for families. There are then two aspects to the switch: First, the plan itself tends to phase down tax cuts for middle-class families, even turning what are initially tax cuts into increases for some. Second, the plan itself is deficit-financed and disproportionately benefiting the top. The tax cuts will eventually be paid for, and, when they are, low- and middle-income Americans are likely to end up holding the bag.
Back to the Family with Two Kids, Making $59,000
When the House rolled out its tax plan, the Republicans led with the example of a married couple making $59,000 and with two kids. They touted how that family would get a tax cut of over $1,000 in 2018. I described how by 2024 under their plan, that family would face a tax increase and one that grew over time.
The chart below shows the trend in the family’s tax changes under both the House and Senate bills and as compared to the trend of the total tax cuts in the legislation. There is an initial tax cut from both packages, with the tax cut under the Senate plan being initially somewhat smaller than under the House plan. And, then the tax cuts dissipate. Under the Senate plan, a family making $59,000 would get a tax cut of only about $100 in 2027. Under the House plan, that family faces a tax increase of over $450 in that year.
This is even as the total tax cuts aren’t going down. In 2027 alone, the Senate’s tax cuts are estimated by the Joint Committee on Taxation (JCT) to cost $217 billion. The House’s tax cuts cost $170 billion in that year. That’s because the tax cuts focused on corporations and those at the top are large and mostly permanent in the current plans — in contrast to the tax cuts for middle-class families.
That family is of course cherry-picked, but it was cherry-picked by the House Republicans to sell their plan. There are middle-class families with smaller tax cuts and even tax increases in 2018. And, the way these tax cuts disappear over time is broadly representative of what happens to the middle class under this legislation.
Seeing the Bait and Switch in Billions
The graph below uses the JCT estimates of the new Senate plan to give a sense for the bait and switch in billions. It compares the cost of the tax cuts for businesses and estates to all of the rest and then looks at several elements that are of particularly focused on low- and middle-income Americans.
The total non-business and non-estate tax cuts fall from a peak of $75 billion in 2019 to $45 billion by 2027. Further, the elements of that particularly important to low- and middle-income Americans (increasing the standard deduction and the Child Tax Credit, offset by eliminating personal exemptions and changing the cost of living adjustments) go from raising net revenue of $10 billion per year initially to raising net revenue of $40 billion by 2027. This is as the tax cuts for businesses and estates are rising rapidly at the end of the window, reaching about $170 billion in 2027.
These patterns — of disappearing middle-class tax cuts as the rest continue — are even more dramatic in the House legislation, since they fully expire one of their offered tax cuts (the Family Flexibility Credit) after 2022.
Looking Out Over Time
Part of the bait and switch is written directly into the legislation, and part of it will play out over time. Each of these plans adds considerably to the deficit — to the tune of $1.5 trillion over the next decade. As Jason Furman and Greg Leiserson point out, the tax cuts will be eventually paid for. When they are, low and middle-income Americans seem likely to end up being left holding the bag — unless the tax cuts are simply reversed. These low- and middle-income families will have been given small tax cuts over the next few years that will largely disappear for many, and then be paying for the much larger tax cuts for those at the very top end, whether through reduced government services and investment or cuts to key programs like Medicare and Social Security.