The Trump Administration has been saying again and again that its plan would deliver a large tax cut to middle-class families. And, supposedly, the few details of their plan released last week include just such a tax cut. The problem? They don’t. Behold the middle-class tax cut that wasn’t.
What the Administration released last week clearly cuts taxes massively for corporations and those at the top of the income distribution (as I explained in a separate post just yesterday). Yet, despite its rhetoric, the Administration has not proposed anything that would clearly and significantly help the middle class.
In fact, as was the case with their campaign tax plan, they are in fact proposing a tax increase for many middle-income families.
The Administration claims otherwise. In an interview yesterday on CBS This Morning, National Economic Council Director Gary Cohn made the following case for the Trump “middle-class tax cut”:
The median income in the United States today is … about $56,000. You take the $24,000 away from the $56,000, you’ve got taxable income of $32,000. At a 10% rate that’s $3,000 of tax. If you have one or two or three children and we give you $1,000 tax credit, you could end up with a—you know, very marginal, single-digit tax rate to no taxes whatsoever. That, to me, is a middle-income tax cut because you’re going to owe no taxes potentially.
This might, at first glance, seem like it’s actually a great deal for these middle-class families. The Administration is proposing to almost double the current “standard deduction,” currently set at $12,700, to $24,000. They may also be expanding the application of the 10 percent bracket, perhaps applying it to some income that would otherwise be taxed at 15 percent.
But, what are we forgetting here? The problem is that such middle-class families already face a single-digit federal income tax rate. In other words, Cohn forgot to mention the fact that our tax system, as it is currently written, provides what are called “personal exemptions” to families. Families—except those at the very top of the income distribution—get a tax write-off of $4,050 per family member, and this is in addition to the current standard deduction.
The plan Trump presented on the campaign trail would eliminate these personal exemptions, and Cohn’s recent appearance suggests that this is still part of the plan. If Trump were proposing to retain the personal exemptions, Cohn would have said as much, by explaining that the family’s taxable income was $32,000 minus their further personal exemptions.
So when you take into account the elimination of personal exemptions, families aren’t actually getting much tax relief after all. In fact, if that family has two or more kids, they’d actually face a tax increase under the Trump plan described by Cohn.
The table above walks us through this, highlighting federal income tax liabilities under the likely plan, as well as under current law for a “typical” family, with one, two, or three kids. The appendix table (below) expands on these calculations.
None of this should come as a surprise to the Trump team. As Lily Batchelder documented last year, the Trump campaign plan—which featured a larger standard deduction (but a slightly higher bottom rate) than the one described last week—would increase taxes on 26 million low- to middle-income Americans.
In the end, the Trump team might eventually propose some larger middle-class tax cuts, even if they will almost certainly be skimpy compared to the tax cuts at the top end. Maybe they will offer a better child care benefit than originally proposed or a promise to keep some personal exemptions. There are any number of ways they could change their plan to do so.
But, the fact remains that, so far, they haven’t even bothered proposing a significant tax cut for middle-class families. Any words stating otherwise are simply smoke and mirrors at this point. Finally, it is important to keep in mind that, even if they adjust their plan to provide a somewhat larger tax increase to the middle-class, there is no fixing the radical regressivity of the tax plan other than by giving up on the immense reductions for corporations and the highest income Americans on which the Administration has so forcefully doubled down.