House Tax Plan: Benefits for Richest 1% in PA Starts High and Grows Over Time

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From the Pennsylvania Budget and Policy Center (http://www.pennbpc.org):

Under the House plan the top 1% of households will receive 30% of all tax cuts in 2018, an average reduction of $46,000 on an average income of $1.8 million. By 2027, their share of the tax cut will grow to 44%, with an average reduction of $66,120 on an average income of $2.45 million.

The bottom 60% will receive only 15% of the total tax cut in 2018, an average reduction of $370 on an average income of $33,000. By 2027, their share of the tax cut will drop to 14%, with an average reduction of $290 on an average income of $47,000.

HARRISBURG — A 50-state analysis of the House tax plan released last week reveals that in Pennsylvania the wealthiest 1 percent of Pennsylvanians will receive, by far, the greatest share of the total tax cut in year one and their share would grow through 2027. Further, the value of the tax cut would decline over time for every income group in Pennsylvania except the very richest 1%.

The GOP House leadership continues to tout their tax proposal, which will increase the federal deficit by $1.5 trillion over the next decade, as a plan to boost the middle class. But a closer examination of the bill’s provisions reveals that it is laser-focused on tax cuts for the nation’s highest-earners. The wealthiest Pennsylvanians share of the state’s tax cuts would grow over time due to phase-ins of provisions that mostly benefit the rich and the eventual elimination or erosion in value of provisions that benefit low- and middle-income taxpayers. For example, after five years, the bill eliminates a $300 non-child dependent credit that benefits low- and middle-income families while fully repealing the estate tax in year six for the very large estates subject to the tax.

More specifically, the 10-year outlook for the plan reveals that by 2027, the share of the tax cut going to the top 1 percent of households in Pennsylvania would increase from 30% in year one – with an average cut of $46,000 – to 44% for an average cut of $66,120. The average tax cut of those in the middle 20% of households would erode from $700 in 2018 to $540 in 2027. The average tax cut of the poorest 20 percent would remain static at $110.

While the legislation cuts taxes for most Americans, provisions in it that limit the deductibility of state and local taxes and mortgage interest lead to taxes increasing on upper-middle class people in some states. Pennsylvania is one of them. Fourteen percent of the households in the 80th to 95th percentile, with 2018 incomes between $108,000 and $226,000, will see their taxes go up by an average of $1,780 in 2018. By 2027, 27% of households in this group will have higher taxes, with a tax increase of $2,780. While one might argue that it makes sense to raise taxes on this relatively well-off group to fund public investments in education and health care, there is little justification in raising taxes on this group in order to more deeply cut taxes on those in the top 1%.

“The fundamental aim of this bill could not be clearer: it will primarily benefit the rich, across the nation and in Pennsylvania, said Marc Stier, Director of the Pennsylvania Budget and Policy Center. “They will also add to the nation’s annual deficits which will create pressure to cut spending. Thus tax cuts that mostly benefit top earners will come at the expense of low- and middle-income families, who will ultimately lose more from cuts to education, health care, infrastructure or other public services than they gain from the small cuts they would receive.”

Following are some highlights of how the plan affects Pennsylvania:

Share of tax cut going to the richest 1% increases from 30% in 2018 to 44% in 2027.

Average tax cuts to top 1% grows from $46,000 to $66,120 between 2018 and 2027 while average tax cut declines for all other groups.

Share of Pennsylvania Taxpayers seeing a tax increase between 2018 and 2027; in the 80th to 95th percentile, the share seeing a tax increase goes up from 14% to 27% between 2018 and 2007.

To read the entire report or get more details about Pennsylvania, go to http://itep.org/housetaxplan.   

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