National Review
Trump’s tax cuts have made the tax code more progressive
Leading Democratic politicians, such as Senate majority leader Chuck Schumer, House Speaker Nancy Pelosi, and President Joe Biden, have often complained that Trump’s tax cuts were nothing more than a gift to the 1 %, further manipulating the tax code for those at the top. But the biggest unreported fact about the Tax and Employment Reduction Act (TCJA) is that it actually made the tax code more progressive. In fact, recent data published by the Internal Revenue Service found that the share of income taxes paid by the top 1% of registrars increased in the first year of TCJA, while the share of taxes paid by the 50% of the registrar base has decreased. These findings come directly from an IRS report that divides the taxpayer share of people with income in fiscal 2018 – the first year of taxes declared under the new provisions. Among its changes, TCJA reduced tax rates, almost doubled the standard deduction and expanded the child tax credit. IRS data shows that 1% of the top registrars, those with adjusted gross income of $ 540,009 or more, pay 40.1% of all income taxes. This figure is almost double its share of the profits. Despite tax rate reductions under TCJA, the most important 1% tax share increased compared to 2017. In fact, the National Taxpayers Union Foundation compiled historical IRS data tracking the distribution of the federal income tax burden until 1980, and 2018 was the largest share recorded in that period. The top 10% of filers, those with adjusted gross income of $ 151,935 or more, paid more than 71% of all income taxes. This was also the largest share recorded in the data available since 1980. The bottom half of wage earners, with adjusted gross income of less than $ 43,614, owed 2.9% of all taxes. This was a decrease from the 3.1 percent recorded in 2017. The lowest participation was recorded in 2010, during the recession, at 2.4 percent. Likewise, between 2017 and 2018, the number of filers without income tax obligation increased by 2.6% to 34.7%. The number of non-taxable returns is generally related to the economy: as employment declines and income falls, the number of taxpayers who do not face income taxes tends to increase and vice versa. While 2018 saw a strong economy that would normally increase the number of individuals with income tax charges, TCJA removed additional people from income tax lists by increasing the standard deduction and expanding refundable credits. We now have a tax code that increasingly protects low-income people from any income tax obligation and requires individuals to pay an increasing share of taxes as they move up the income ladder. To illustrate how much the progressiveness of the tax code has increased over the past 40 years, consider that, in 1980, the 1% of the biggest earners paid 19% of income taxes, the 10% of the largest earning almost half of the income taxes and the bottom 50% paid 7%. That’s twice as much today. However, several politicians and experts continue to attack the tax reform law as a regressive boon for those who “are not paying their fair share”. But then again, under TCJA, the rich are paying a larger share of income taxes than at any time in the past four decades, although the maximum marginal rate dropped from 70% in 1980 to 37% in 2018. The distribution of Income taxes will undoubtedly be at the center of tax policy debates in the new year. During the campaign, Joe Biden launched a tax plan that would raise the maximum rate back to 39.6% and raise rates for corporate taxes, capital gains and payroll taxes. Other Democrats, such as Congresswoman Alexandria Ocasio-Cortez (D., NY), advocate a maximum income tax rate of 70% or more. These new IRS data make it clear that TCJA has initiated a significant general reduction in the tax burden that, in fact, has made the code more progressive, not less. Congress would do well to remember this when discussing future tax reform efforts.