It will cost about $5 trillion over 10 years to extend the 2017 tax cuts that end next year. However, millions of U.S. households will still have bigger tax bills even after paying that huge amount of money.
A new study from the Tax Policy Center says that if parts of the Tax Cuts and Jobs Act are extended, they will leave 13% of middle-income households with higher taxes than they would have had the provisions expire as planned.
That’s because when the tax code was changed in 2017, the standard deduction went up and the child tax credit doubled to $2,000. However, many middle-class families lost or had their deductions cut for personal exemptions and other deductions.
The analysis shows that the vast majority of the $5 trillion in tax cuts would go to households earning more than $450,000 and shift the overall burden of funding the U.S. government to middle- and lower-income Americans.
One of these is that the law now limits tax deductions for state and local taxes to $10,000. Other limits include moving costs, losses from accidents or theft, and alimony payments. The law also said that taxpayers had to give a Social Security number for each dependent. This meant that taxpayers could no longer claim a child tax credit for noncitizens.
Benjamin Page, a senior fellow at the Tax Policy Center, told MarketWatch that people who would lose out on an extension of the law “are mostly going to be itemizers without dependents under 17.”
The study also finds that most of the $5 trillion in tax cuts would go to families making more than $450,000 a year. This would mean that middle- and low-income Americans would have to pay more for the U.S. government.
This would save Americans in the top 0.1% about $278,240 in taxes each year, according to the Tax Policy Center. Families in the middle of the income range would save an average of $1,030 each year. This is what Republicans say they will do if they win back the White House and the Senate in November.
When asked for a comment, the Trump campaign didn’t answer right away.
The study agrees with a new study from the Tax Foundation that said making the 2017 law permanent would make the tax system less progressive.
Investors’ after-tax incomes will rise by an average of 2.9% in 2026, according to Erica York, senior economist at the conservative Tax Foundation. The rise in incomes for the bottom quintile will be slightly less than the average at 2.2%, while the rise in incomes for the top quintile will be more than the average at 3.4%.
“It would make the tax system less progressive because it would raise income after taxes more for high earners than for low earners,” she said.
Since it would cost a lot to keep all of the tax cuts from 2017 in place, the unfair benefits of the law may become a political issue even if the Republicans win back Washington.
Analysts say it’s unlikely that Republicans will agree to add $5 trillion to the national debt at a time when budget deficits are already at all-time highs. Also, some Republicans are open to slightly raising the corporate tax rate to cover the cost of extending rate cuts for individuals.
A report from last week by Semafor says that more than 10 Republicans in the House are now willing to raise the top corporate tax rate.
Speaker of the House and a member of the right-wing Freedom Caucus, Chip Roy of Texas, told the publication that he doesn’t think Congress should “rubber stamp” the 21% corporate rate, which was permanently lowered from 35% by the 2017 law.
“It’s no longer 2017!” “This is the year 2024,” Roy told Semafor. “We need to get our tax policy together, and everything should be on the table.” There is nothing holy about 21%.
One more bill that might be thrown out is a rule that would let owners of pass-through businesses deduct up to 20% of their profits from their taxable income. The extra measure was added to the tax-cut bill so that small businesses could also get tax cuts, like big businesses did.
The allowance is pricey, though, and more than half of its benefits go to the top 1% of earners.
Page said, “The business deduction is really big at the top.” “That’s one of the tougher rules to defend.”
Even groups that support lower taxes, like the Tax Foundation, say that the pass-through deduction messes up the economy because it makes business owners change how they classify their companies and how they distribute profits, which lowers tax revenues without increasing economic activity much.
Letting this deduction expire would save $700 billion over 10 years, which could be used to extend other parts of the 2017 law that people might like more.
