The Tax Cuts and Jobs Act (TCJA), enacted during the Trump administration, remains a hotly debated policy with proponents and critics on both sides of the aisle. A White House spokesperson stated that the TCJA cut taxes more for working families than rich families on a proportional basis. However, the broader picture shows that all income groups experienced a boost in after-tax income, according to the U.S. Treasury Department. As discussions around extending these tax provisions continue, differing analyses reveal contrasting beneficiaries of these cuts.
A July 2024 analysis by the Urban-Brookings Tax Policy Center indicated that households in the top 5% of earners, making over $450,000 annually, emerged as the "biggest winners" under the TCJA. Their average tax rate dropped from 4% to 3.4%, translating to an average tax savings of approximately $70,000 in dollar terms. Despite these numbers, the top 1% of earners paid a staggering 40% of all U.S. income taxes collected in 2022, as per a recent Tax Foundation analysis.
For the bottom 50% of Americans, the TCJA resulted in a 15% drop in average federal tax rates from 2017 to 2018. Experts agree that the act lowered taxes for most U.S. households. The U.S. Treasury Department reports that extending the Trump law would secure an average 2.2% tax cut. Moreover, if TCJA provisions remain in place, 62% of tax filers would see reduced tax bills by 2026 compared to a scenario where the measures expire.
Garrett Watson, director of policy analysis at the Tax Foundation, encapsulated the debate's complexity:
"The reason why the debate is so fractured is there are elements of truth to both sides," – Garrett Watson, director of policy analysis at the Tax Foundation.
The Wharton analysis supports this view, suggesting that in 2026, the bottom 80% of income earners would receive 29% of the total value of proposed tax cuts. Meanwhile, with an extension of current laws, Americans could anticipate a 2.9% boost in after-tax income on average by 2026.
However, the largest tax cuts are poised to favor the highest-income families, according to Treasury insights. The Tax Policy Center projects that by 2027, households in the top 1%, earning about $1 million or more annually, would enjoy a 3.2% increase in after-tax income.
Opinions diverge on whether the TCJA's benefits predominantly favor wealthier citizens or provide equitable relief across different income groups. As Hines from the University of Michigan explained:
"If you ask, 'Who gets the dollars,' it's mostly rich taxpayers," – Hines of the University of Michigan
While Democrats argue that most tax dollars flowed to affluent taxpayers, Republicans contend that cuts were not biased towards wealthier individuals relative to their original contributions:
"Democrats say most of the tax dollars went to the rich: They're absolutely correct," – Hines
"Republicans say, 'But the cuts were not slanted to the rich compared to how much people were paying originally," – Hines
Rep. Jason Smith, R-Missouri, chairman of the Ways and Means Committee, argued that extending these cuts would provide historic relief:
"Extending the Trump tax cuts delivers the biggest relief to working-class Americans and small businesses in a generation," – Rep. Jason Smith, R-Missouri, chairman of the Ways and Means Committee
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