For Some Families, the Trump Tax Cuts Eliminated Their Federal Income Tax Burden
President Donald Trump cut taxes for most, but liberals have taken a lead in the messaging war. While roughly 80% of taxpayers received a tax cut resulting from the Tax Cuts and Jobs Act (TCJA), a poll commissioned by the New York Times found that only 40% believed they had received one.
How can such a perception gap exist? For one, some taxpayers received smaller than expected tax returns following the TCJA taking effect (because a smaller percentage of their income was withheld throughout the year), and wrongly interpreted that as an increase in taxes. But mainly, because the media’s messaging on the TCJA has focused on portraying the cuts as a giveaway mostly to the wealthy.
The percentage of tax cuts going to the wealthy is always going to be disproportionate anytime all tax brackets are cut, simply because of how wealth is concentrated. A 5% tax cut for a millionaire is going to save more money than a 100% tax cut is for someone earning $50,000 a year, yet I don’t think the latter person would complain. Before the Trump tax cuts, the bottom 80% of income earners paid roughly 33% of all federal income taxes, but received 35% of the benefits from the Trump tax cuts. The top 1% paid 27% of all federal taxes, and received only 21% of the tax cut, according to the center-left Tax Policy Center. Ironically, it was higher earners most likely to see a tax increase resulting from the TCJA capping state and local tax deductions at $10,000.
And speaking of a 100% tax cut, that is what happened to the federal tax burden for a family of four earning the median household income thanks to the TCJA. According to Forbes Magazine’s William Baldwin:
I looked at what would have happened to hypothetical couples filing jointly in nine different states, including several with stiff state income taxes and two with none. I compared what their federal taxes would have been for 2020 under the old tax law with what they’re going to pay next year under the new law.
For couples with an income of $60,000 and two young children, the Trump tax cut resulted in a complete elimination of federal income tax. It doesn’t matter what state they’re in.
There are some taxpayers who were made worse off by the 2017 law change. Kick up the income to $1 million and you see some increases in New York, New Jersey and California (small increases, a few percentage points).
Baldwin’s calculations are based on hypothetical couples filing jointly in nine different states with differing levels of state income taxes. He also takes into account itemized deductions that are average for taxpayers at their income levels. You can use the calculator yourself *here*.
While a family with two children is in a unique tax situation because Trump was generous in doubling the child tax credit to $2,000 per child, the average American still received a tax cut of $1,600.
That’s great news, and yet the media would like you to view the TCJA as a failure.