As Americans are nearing the end of tax season, many people are finishing up filing their taxes and seeing what their tax return looks like. This is the first full year that we’ve seen the results of the GOP tax bill, also known as the Tax Cuts and Jobs Act (TCJA), that was rushed through Congress in 2017 and largely crafted behind closed doors. In case you forgot the details on the TCJA, you can review MBPC’s summary here and to better understand the impact this legislation has had on health care affordability you can look here.
As MBPC predicted over a year ago, the wealthiest individuals and corporations are the biggest winners, while working families are experiencing small cuts and even smaller returns. It is apparent today that this federal tax legislation did not provide meaningful tax reform for individuals and families who are middle- and low-income in our state.
Corporations benefit at the expense of workers
So far, the TCJA has created a short-term economic boost, but this boost has largely benefited the corporations and stockholders. Apple, Netflix, Amazon, Google, and other multi-national corporations paid little to no income taxes prior to the TCJA in 2017. With the passage of this legislation, large, multi-national corporations got yet another tax cut with the promise that these cuts would benefit workers through increased wages and benefits. However, as of March 2019, workers have not seen significant benefits and corporations are fattening their bottom line.
Workers see uncertainty and no meaningful tax relief
Corporations pledged that workers would receive generous bonuses as a result of the corporate tax cuts, but data from the Bureau of Labor in December 2018 shows that the promised cash bonuses gave workers a measly two cents extra an hour and only about 4.4 percent of workers received a bonus or wage increase as a result of the TCJA. Congress could have passed legislation to provide meaningful changes for workers, such as increased wages. Instead, the TCJA allowed corporations to buy back stocks and create a temporary boost in the stock market. In spite of the significant benefit to these corporations and the promises of benefits to workers, some of these large corporations, notably General Motors, has implemented layoffs despite their $150 million saving due to the TCJA.
The reality of who gets a tax cut
An analysis of the bill from the Institute on Taxation and Economic Policy, a non-profit, non-partisan tax policy organization, found that 70 percent of the tax cuts will go to the top 20 percent of taxpayers. For the top one percent, the average tax break in 2018 is estimated to be $48,320 per year, or the entire yearly salary of a firefighter in Montana. This is by design and benefits the wealthiest tax payers due to changes to the federal tax code, including:
- Doubling the estate tax exemption to $11 million, which benefits individuals with $11 million or more in assets;
- Cutting the corporate tax rate by two-fifths (from 35 to 21 percent), which creates a powerful incentive for wealthy Americans to shelter large amounts of income in corporations;
- Cutting the top individual tax rate from 6 percent to 27 percent; and
- A special new 20 percent deduction for pass-through businesses. The deduction effectively means that certain pass-through income will face a lower tax rate than wages and salaries, creating an incentive for high-income individuals to reclassify their salaries as pass-through income.
For individuals who earn between $45,200 to $135,600, and are considered in the middle of income distribution, they receive an average tax cut of just 1.6 percent. This equals about $810 per year per household. The bottom of the income distribution, those who make less than $45,2000 per year, will receive an average tax cut of 0.9 percent, which is roughly $120 per year.
So far over the course of tax filing season, returns have fluctuated from being above average and below average when compared to the same time last year, and it is unclear where tax returns will land at the end of this tax season. This uncertainty comes on the heels of the 35-day government shutdown from December 2018 and January 2019 that hurt 7,000 Montana workers and their families. Regardless of where refunds stand at the end of tax season, it is clear that TCJA has yet to meaningfully and substantially improve the lives of workers as promised. Instead, the changes to the tax code help for the wealthiest first and foremost.
Working families seemed largely an afterthought in congressional deliberations over the new tax law. Rather than providing more tax cuts for the rich and multi-national corporations, lawmakers need to pass tax reform measures that increase the progressivity of the tax code, raise revenue, and reverse the damage of the TCJA. Some places to start would be to end the preferential treatment of capital gains, reform the estate tax, limit itemized deductions, curb deprecation tax breaks, and close offshore loopholes.