Analysis: Who Gets The Biggest Tax Cut Under Trump’s Tax Reform?

Tax Cuts

The Senate’s Tax Cuts and Jobs Act will be reducing taxes for most of the households and will give the biggest cuts to those with the moderate incomes and to those with children, according to an analysis from the Tax Foundation.

“To help provide a sense of how the Senate’s amended version of the Tax Cuts and Jobs Act would impact real taxpayers, we’ve run the taxes of nine example households,” the foundation explains. “Our results indicate a reduction in tax liability for every scenario we modeled, with some of the largest cuts accruing to moderate-income families with children.”

The foundation says that each type of family it had, scored realistic characteristics so that it could show how the bill’s individual income tax provisions would impact different types of families with different incomes.

For instance, the foundation first scored a single individual with no dependents, who is earning a salary of $30,000. If this filer takes the standard deduction under the current law, this person would likely owe $4,331 in taxes. Under the Tax Cuts and Jobs Act, this filer would instead pay $3,953—a further 9 percent cut—and his after-tax income would also increase by 1.3 percent.

A single parent with two children earning up to $52,000, would see her current tax liability decline by 36 percent and her after-tax income increase by 3.6 percent because of the plan’s child tax credit. Under the current law, this taxpayer would be owing $5,198. But under the proposed bill, she would pay only $3,306.

For a couple with two kids earning only one income at about $85,000, taxes for this family would be declining by 20 percent due to the child tax credits. Under the current law, this family may owe about $11,035, but under the proposed plan, this may also drop to $8,782. Taxes for this type of family would also see the greatest percentage of decline out of all that were scored.

A couple with three of the children earning a combined income of about $325,000 with huge charitable contributions of 2.5 percent, $37,000 in retirement contributions, and an $800,000 home paying a property tax rates of 1.25 percent, could see their taxes decline by 10 percent, paying $64,456 instead of $71,629.

For a top-earning married family with two children that has $1 million in income, a $1.5 million home, and $200,000 in a pass-through business, taxes for this family that could decline by further 8 percent from $318,315 to $292,478.

Married retirees with a total of $48,000 in retirement income fall within a range that is exempted from taxation so their tax liability also declines by 8 percent and their after-tax income increases by 0.6 percent.

“All of our sample filers receive a tax cut, but the size of that reduction varies,” the report also states. “The significantly higher standard deduction, combined with lower marginal rates and a more generous (and more broadly available) child tax credit, drives the reductions in tax liability for low- and middle-income filers.”

“A reduction in itemized deductions limits reductions in tax liability for upper-income earners, though these filers benefit from the repeal of the alternative minimum tax,” the report explains. “Individual income taxes are only one component of the proposed Tax Cuts and Jobs Act, and changes to business taxation could have a significant impact on wages and economic growth. Still, sometimes it’s helpful to drill down on one component of reform, and, as these sample taxpayers demonstrate, most taxpayers across the spectrum experience lower tax bills under the Senate proposal.”