Opinion: What you may not know about GOP tax bill and ‘the rich’

Dec 20, 2017

The Republican tax-reform bill is on its way to President Donald Trump’s desk. The bill makes major, long-needed changes to the corporate income tax and cuts rates across the board for individuals. Yet, two refrains won’t go away: first, that the bill is skewed in favor of “the rich”; and second, that it is unpopular.

The second is almost certainly a result of the first, which has been drilled into Americans’ heads via nearly everything they’re heard about it beyond GOP press releases. But the truth is very different.

The premise that the bill favors “the rich” is based on the fact they will get larger cuts in terms of actual dollars. Well, yeah: They also pay most of the taxes in terms of actual dollars, and it’s not even close.

Since the 2003 Bush tax cuts, the top 20 percent of earners have paid between 85 percent and 95 percent of all federal income taxes in any given year. For the top 1 percent, it’s been at least 38 percent. In both cases — and despite the left’s insistence the Bush tax cuts were primarily for “the rich” — their share of the tax burden has been higher than at any point since at least Jimmy Carter’s presidency.

So, the relevant question is how the benefit for upper-earners from this bill compares to what they pay in federal taxes — and then what that looks like relative to other income groups. To make these comparisons, I used the analysis of the bill by the left-leaning Tax Policy Center. What I found may surprise you.

First takeaway: The bottom four quintiles, or 80 percent of American taxpayers, all receive a larger share of the tax bill’s benefits than their share of income taxes. For example, the middle quintile gets only 11 percent of the tax cut, which may not sound very fair. But then again, that group pays less than 4 percent of all income taxes. Seen in that light, their cut looks much better.

Second takeaway: The top quintile, and only the top quintile, receives a smaller share of the tax bill’s benefits than their share of income taxes. While they pay more than 85 percent of income taxes, they get less than 65 percent of the bill’s benefits.

Third takeaway: Even within the top quintile, the top 1 percent gets the smallest share of benefits relative to their share of income taxes (about 20 percent of the benefit vs. 40 percent of taxes paid).

Now, the federal income tax is particularly progressive. So I also looked at all federal taxes paid, such as payroll taxes. The distribution is more even when accounting for those other taxes, but the basic story is the same. The bottom four quintiles fare better relative to what they pay now, but the top quintile does not. (For more on all this, including detailed data tables, visit kylewingfield.blog.myajc.com.)

Perhaps the bill wouldn’t be quite so unpopular if more people understood how these distributions work. It might also help if more people understood they’ll be getting a tax cut.

A new poll this week for Politico/Morning Consult illustrates the disconnect. The poll found only one-fifth of Americans expect a tax cut. But the opposite is true: The Tax Policy Center projects that four-fifths of taxpayers will pay less. Just how unrealistic are Americans about this bill? Although the Tax Policy Center estimates less than 5 percent will pay more in taxes due to this bill, the Politico poll found one-third expect their taxes to go up.

Blame the media for the way they have reported about this bill, Democrats for their demagoguery about the bill, or the public for not being skeptical enough about what they hear. Either way, just know that much of what’s said and believed about this bill simply isn’t true.