Trump’s tax cuts made the tax code more progressive

President Donald Trump speaks as he participates in an executive order signing event in Washington, DC on August 3, 2020. (Jonathan Ernst / Reuters)

Recent data from the IRS has put an end to a common misconception about the 2017 tax reform.

THEto eat Democratic politicians such as the Senate Majority Leader Chuck schumer, House tenant Nancy Pelosi, and president Joe biden have often complained that Trump’s tax cuts were nothing more than a giveaway to the 1%, further rigging the tax code for those at the top. But the most important unreported fact about the Tax Cuts and Jobs Act (TCJA) is that it actually made the tax code more progressive.

Indeed, recent The data published by the Internal Revenue Service finds that the share of income taxes paid by the richest 1% of tax filers increased in the first year of the TCJA, while the share of taxes paid by the top 50% lowest filers declined.

These results come directly from an IRS report that breaks down the tax share of employees for the 2018 tax year – the first year of taxes filed under the new provisions. Among its changes, the TCJA lowered tax rates, nearly doubled the standard deduction and expanded the child tax credit.

IRS data shows that the richest 1% of tax filers, those with adjusted gross income of $ 540,009 or more, paid 40.1% of all income taxes. This amount is almost double their share of income.

Despite the rate cuts under the TCJA, the tax share of the top 1% increased from 2017. In fact, the National Taxpayers Union Foundation has compiled historical data from the IRS tracing the distribution of the taxpayers’ union. federal tax burden until 1980, and 2018 was the highest share recorded during this period.

The top 10% of tax filers, those with adjusted gross income of $ 151,935 or more, paid more than 71% of all income taxes. It is also the highest share recorded in the available data since 1980.

The bottom half of wage earners, with adjusted gross incomes of less than $ 43,614, owed 2.9% of all taxes. This is down from 3.1% recorded in 2017. The lowest share was recorded in 2010, during the recession, at 2.4%.

Similarly, between 2017 and 2018, the number of filers without income tax increased by 2.6% to reach 34.7%. The number of tax-free returns is often linked to the economy: as employment declines and income declines, the number of filers with no income tax tends to increase, and vice versa.

While 2018 saw a strong economy that would normally increase the number of people with income tax burdens, the TCJA removed additional people from the tax rolls by increasing the standard deduction and increasing refundable credits.

We now have a tax code that increasingly protects low-income people from all income taxes and requires individuals to pay an increasing share of taxes as they move up the income ladder. To illustrate how the progressivity of the tax code has increased over the past 40 years, consider that in 1980, the richest 1% of wage earners paid 19% in income tax, the top 10% the rich paid almost half of the income tax, and the bottom 50 percent paid 7 percent. It is twice as much as today.

Nonetheless, various politicians and experts continue to attack the tax reform law as a regressive giveaway to those who “do not pay their fair share”. But again, under the TCJA, the rich pay a greater share in income taxes than at any time in the past four decades, even though the top marginal rate has risen from 70%. in 1980 to 37% in 2018.

The distribution of income tax will undoubtedly be at the center of the tax policy debates in the new year. During the campaign, Joe Biden released a tax plan that would raise the top rate to 39.6% and increase corporate tax rates, capital gains and payroll taxes. Other Democrats such as Rep. Alexandria Ocasio-Cortez (D., NY) advocate a top tax rate of 70% or more.

This new data from the IRS clearly shows that the TCJA ushered in a significant overall reduction in tax burdens that in fact made the code more progressive, not less. Congress would be wise to remember this when discussing future tax reform efforts.

Demian Brady is vice president of research at the National Taxpayers Union Foundation, a nonprofit organization dedicated to research and education on tax and budget policy at all levels of government.


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