The highest-income households would receive more than 45% of the benefits if the expiring provisions of the 2017 Tax Cuts and Jobs Act are extended, according to an analysis released Monday by the Urban-Brookings Tax Policy Center.
The tax cut law was a key accomplishment of former President Donald Trump’s first term, but the individual and certain business tax provisions are set to expire at the end of next year. Trump has promised to extend them if he is returned to the White House in November’s election.
If the law’s provisions are made permanent, households making at least around $450,000 – roughly the top 5% – would be the biggest winners, the analysis found. They would see their after-tax income increase by 3.2%.
For those in the top 1%, who make at least $1 million, that equates to a tax cut of about $70,000, on average, in 2027. The top 0.1%, who make at least $5 million, would pocket a tax cut of nearly $280,000, on average, or about 3% of their after-tax income.
Middle-income households earning between roughly $65,000 and $116,000, on the other hand, would receive a tax cut of about $1,000, or 1.3% of their income.
Overall, extending the 2017 tax law would reduce taxes for about three-quarters of households, but hike them for about 10%, according to the analysis.
Addressing the expiring provisions will be a contentious issue in Congress next year. Trump and many Republican lawmakers want to extend the tax cuts, saying they have helped spur economic growth. But President Joe Biden and many congressional Democrats have said they would allow the measures benefitting those earning more than $400,000 to lapse, arguing that the law disproportionately helped the rich.
“There is much we still need to learn about how the candidates would address the looming expiration of many key provisions of the TCJA,” Harold Gleckman, senior fellow at the Tax Policy Center, wrote in a post. “But one thing is clear: While extending the law as is would benefit most taxpayers, the biggest winners would be those making $450,000 or more.”
Complicating matters is that extending the provisions would have a big impact on the national debt, raising it by more than $4 trillion over the next 10 years – before interest costs are factored in, according to the Congressional Budget Office.
The TCJA contained a bevy of individual income and corporate tax reductions, making it one of the largest tax cut packages in US history. Unlike the individual tax provisions, most of the corporate measures are permanent.
Some of the key provisions that expire at the end of 2025 include: the reduction of individual income tax rates, notably the top rate of 37%, down from 39.6%; the near doubling of the standard deduction; the doubling of the annual child tax credit to $2,000 and allowing more higher-income parents to claim it, and the essential doubling of the estate and gift tax exemption.
In addition, the law temporarily created a special deduction for the owners of certain pass-through entities who pay their business taxes on their individual tax returns. The deduction, which also expires at the end of 2025, allows these taxpayers to exclude up to 20% of their business income from their federal income tax. These so-called pass-through businesses include partnerships, such as those formed by lawyers, doctors or investors.
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