The Gazette-Times editorial of April 18 conceded (somewhat begrudgingly, it seemed) that the vast majority of Americans paid less in federal income tax in 2018 than in 2017. Yet, while providing no documentation and citing no examples, it flatly stated that the new law “unduly benefits the rich.” Really? Someone needs to prove that to me. Let’s examine some numbers.
On the macroeconomic side, The Tax Foundation has reported that, in 2016, the government collected $1.4 trillion in personal income tax, and the top 1% paid 37.3% of that (up from 25.8% in 1986). That equates to $522 billion paid by that segment. The G-T goes on to bemoan that, “the top 1% of taxpayers got nearly 17% of the total benefit from tax reform." Pay 37.3% of the total tax, get 17% of of the tax cut; this unduly benefits them how?
Let’s do some easy math to further illustrate that this premise lacks validity. We already know the 2016 government grab was $1.4 trillion. For demonstrative purposes only, we’ll assume the 2018 law would have reduced that by $100 billion to $1.3 trillion. The ”17% of benefit” means the 1% pay $17 billion less, thus reducing their tax burden from $522 billion to $505 billion. This, however, makes their share of all personal income tax 38.8%, up rather drastically from the previous 37.3%. Where is the disproportionate benefit?
Let’s look also at a microeconomic perspective, as the editorial pointed out that the average tax cut for the 1% exceeded $30,000, which was probably higher than yours or mine (no argument).
An Oregon couple with $1 million taxable income would have paid $341,231 in 2017 and $309,379 in 2018 — a reduction of almost $32,000. But (and this is a very big but), would their taxable income have remained the same?
You will have heard of the SALT (state and local taxes) limitation of $10,000 in itemized deductions under the new law. The more you pay in property tax and state income tax (in effect, the richer you are), the greater the likelihood your taxable income goes up from 2017 to 2018.
Our Oregon couple’s $1 million taxable income in 2017, would have earned them an Oregon tax bill of $96,274 (ouch!), which could have been used, depending on other factors, to lower federal taxable income. In 2018, however, they can only use $10,000 of that, and the remaining $86,274 effectively raises their taxable income. At their 37% tax rate, this increases their 2018 tax liability by (wait for it) ... almost $32,000! Bottom line — no benefit from the new law.
One other point – the Tax Policy Center data used in the G-T editorial shows that well over 80% of households with income over $50,000 actually received a tax cut, but a number of households don’t think they did. This would seem to speak to a combination of the effectiveness of the deliberate mistruth campaign perpetrated by the Democratic Party and the propensity of vast numbers of Americans to base their entire grasp of how tax law affects them on the amount of their refund. Either scenario reflects rather poorly on a system that leaves tens of millions with no clear understanding of what happens to hundreds of billions of dollars which, once upon a time, was their money.