Rep. Kevin Brady, the chairman of the House tax-writing committee, made misleading claims about the Tax Cuts and Jobs Act passed by the House earlier this month:
- Brady said “70 percent of the tax relief goes to those families making less than $200,000.” But that refers only to the individual income tax changes and only for 2019. By 2027, 50 percent of tax relief as a result of business and individual tax changes would go to those making more than $200,000 a year, according to congressional tax analysts.
- Brady said his bill provides “tax relief at every level.” That’s true initially, according to congressional analysts, but over time some income levels will pay more in taxes. That’s because the bill ends a new tax credit after 2022 and changes how tax brackets are adjusted for inflation, pushing more people over time into higher tax brackets.
Brady made his remarks on Fox News’ “Sunday Morning Futures” when he was asked if the House tax plan cuts taxes “on people who don’t pay taxes” and raises taxes “on the people who pay taxes.” In his answer, Brady talked about taxpayers with income of up to $200,000, which he described as the “range of middle class … that we all worry about.”
Brady, Nov. 26: The answer is no. We provide tax relief at every level under the House tax reform plan that we passed; 70 percent of the tax relief goes to those families making less than 200,000.
As we have written, both parties have emphasized the impact of the tax plan on the so-called “middle class.”
The House Democrats have criticized the plan as a windfall for the wealthy at the expense of the middle class. They cite, among other things, provisions in the House bill that would cut the corporate tax rate from 35 percent to 20 percent, abolish the alternative minimum tax, eliminate most itemized deductions and abolish the estate tax.
The House Republicans — as Brady has done — say the bill will provide tax relief at every level. They cite the House bill’s provisions that would increase the child tax credit from $1,000 to $1,600, create a new family tax credit of $300 per parent and non-child dependent, and nearly double the standard deduction to $24,400 ($12,200 for single taxpayers).
The bill would also collapse the seven income tax brackets, ranging from 10 percent to 39.6 percent, to four (12 percent, 25 percent, 35 percent and 39.6 percent).
First, let’s look at Brady’s claim about families making less than $200,000 receiving most of the tax relief under the House bill.
Brady, the chairman of the House Committee on Ways and Means, got the 70 percent figure from a Nov. 13 analysis of the House tax plan by the Joint Committee on Taxation, the official congressional scorekeepers. But his committee spokesperson said Brady was not referring to the entire tax plan — just the changes to the individual income tax code for the year 2019.
The JCT report indeed shows (first chart on page 6) that the individual income tax side of the House proposal would reduce taxes by $121.8 billion in 2019, and about $84 billion of that, or 69 percent, would go to those earning $200,000 or less.
But cherry-picking one piece of the tax plan and looking at just one year ignores the overall impact of the legislation and how the impact on taxpayers changes over time.
The JCT analysis provided multiple charts that estimate the impact of the tax changes on various income groups over 10 years in two-year increments. One of the charts measures the change in federal business and individual income taxes by income group for 2019, 2021, 2023, 2025 and 2027. Using that chart, we calculated that 57.7 percent of the tax relief goes to those families making less than $200,000 in 2019 — not the 70 percent that Brady cited for 2019.
By 2027, 50 percent of tax relief as a result of business and individual income tax changes would go to those making more than $200,000 a year.
A spokesperson for the Ways and Means Committee said that Brady used the JCT estimate for individual income taxes, rather than its estimate that combines business and individual taxes, because the chairman believes the JCT underestimates the benefits of the business cuts on “middle-class” taxpayers.
As we have written, JCT and the Congressional Budget Office estimate that 25 percent of the corporate tax burden falls on workers. But Brady sides with economists who say it is higher than that, which would mean that corporate tax cuts would benefit workers more than estimated by the JCT.
Brady made none of that clear in his interview. Instead, Brady cherry-picked the findings of the JCT report to present a more favorable tax outcome for the “middle class” than contained in the congressional analysis.
Brady also misled viewers when he claimed that the House bill provides “tax relief at every level.”
JCT doesn’t explain why, but its analysis shows that some income groups would pay more in taxes beginning in 2023. That also happens to be the year that the House bill ends the new family tax credit. This new tax credit (in section 1101 of the bill) would provide families with a $300 tax credit per parent and non-child dependent, but only until Jan. 1, 2023.
In 2023, for example, taxes would increase compared with current law by $302 million for those earning less than $10,000 and nearly $1.9 billion for those earning between $20,000 and $30,000. (See chart below.)
In unveiling the tax bill, House Speaker Paul Ryan touted that a typical family of four (with a median household income of $59,000) would see a $1,182 tax cut. But David Kamin, a professor at New York University School of Law who served as a special assistant to President Obama for economic policy, writes that Ryan’s hypothetical family would have to pay more in taxes beginning in 2024, in part because of the expiration of the new family tax credit.
Over time, those in the upper-income categories would pay more in taxes, too.
Why? Howard Gleckman, a senior fellow with the nonpartisan Tax Policy Center, told us that’s in large part because the House bill would use a less generous measure of inflation to index tax brackets.
Under the current tax code, the IRS uses the Consumer Price Index for urban consumers to adjust tax bracket thresholds for inflation. But the House bill would switch to an index known as chained CPI. As we have written, chained CPI is considered a more accurate measure, but it would mean bracket thresholds would rise more slowly and push more people into higher tax brackets.
The JCT analysis shows that those with incomes between $200,000 and $500,000 would pay more in taxes in 2023 and 2025 than under current law, and those earning between $500,000 and $1 million would pay more in taxes in 2023.
“The changed pattern in the later years is because of the expiration of the family credits and the effects of the chained CPI,” Gleckman told us in an email.
We should also note that even in the earlier years there will be winners and losers, despite Brady’s claim that the House bill provides “tax relief at every level.” TPC estimates that about 7 percent of households in 2018 would pay an average of $2,100 more in taxes under the House bill, and that nearly one-quarter would pay more in 2027.
“The bills’ effects on individual households would be highly idiosyncratic and will depend on where you live, how many children you have, and how you make your living,” Gleckman told us. “If you live in a high tax state with lots of kids, and get paid a salary, you likely will lose. If you have one child, live in a low-tax state, and own investment partnerships, you will do very well.”
A House Ways and Means Committee spokesperson told us that the economic benefits of the tax plan will result in higher wages and offset the tax increases projected by the JCT. That’s a matter of dispute.
The CBO, in cooperation with the JCT, is required by law to produce a “dynamic” analysis that accounts for the economic impact of major legislation. But it did not have time before the Nov. 16 House vote to conduct such an analysis. It still hasn’t done one, although the Washington Post reports that congressional analysts are rushing to get one done before the Senate vote — a vote that could come as early as Dec. 1.
Brady ended his answer on “Sunday Morning Futures” by saying: “At the end of the day, I think everyone is going to keep more of what they earned.” But that’s not a promise he can make.