What are the potential effects on the macro-economy of this new tax policy? According to Politifact:
The potential impact on lower- and moderate-income households:
- Since low-income households generally pay little to no federal income taxes, changes in tax rates will have little impact on their incentive to work, hence income. However, low-income individuals often qualify for earned-income tax credits, so there might be some extra money coming back to these households in the form of tax credits.
- The doubling of the standard deduction to $24,000 may benefit some low-income households since low-income individuals rarely use itemized deductions.
- The impact of the elimination of the Obamacare individual mandate will fall disproportionately on poor households since most high-income families receive health insurance through their employers whereas low-income families often do not receive this benefit. Eliminating the mandate would save a “no-insurance” household about $2,000 in foregone federal penalties for not buying insurance.
- The Tax Policy Center of the Brookings Institute estimated the 2018 impact of the current tax reform bill is that households in the lowest 20 percent of the income distribution would see a net tax cut of about $60. The next higher 20 percent would see a cut of about $300; and the middle 20 percent, a cut of about $840.
The potential impact on the wealthiest households:
- Most of the benefits of the tax cuts would benefit the wealthiest taxpayers, primarily due to the fact that the wealthiest households pay the lion’s share of federal income taxes.
- The reduction in the alternative minimum tax, the lower top marginal rate, the lower tax rate for “pass-through” income and the higher threshold for the estate tax all reduce the tax liabilities just for those eligible for these programs – that is, the wealthy.
- According to the forecasts of the Tax Policy Center, the average tax liability in 2018 for the richest 20 percent of income earners would fall by $4,800. The top one percent would save an average of $37,000 in 2018, while the top one-tenth of one percent would see a $175,000 tax reduction.