The new tax law costs an estimated $1.8 trillion and contained within it are some of the biggest tax cuts in recent memory. But those tax cuts are not distributed evenly across all income levels, and they are not consistent over time. Initially, many Americans are going to see their taxes go down slightly, but the tax savings for low- and middle-income Americans will disappear as the years go on, until by 2027 the majority of Americans will see a tax increase. Ultimately, most of the long-term benefits of these cuts are concentrated among wealthier Americans and corporations, not the middle-class. In fact, once the law is fully phased in, 83 percent of the total tax benefits will go to the richest 1 percent.
Do people like me benefit from this new tax law?
Initially, the new law does reduce taxes for most Americans, however, higher income households will receive a disproportionately larger share of the benefits, with those at the very top getting the greatest share, and the biggest cuts. And, ultimately, a majority of taxpayers will end up paying more in taxes by 2027.
This year, almost everyone will see their taxes go down (though about 8.5 million households are expected to pay more, according to the nonpartisan Tax Policy Center). On average, the effect will be a 2.2 percent increase in after-tax income. However, the average is a little bit misleading. Lower-income households will get a smaller tax cut than that, while higher income households get a bigger one. For example, the average tax cut for a family making between $30,000 and $40,000 this year is about $360, or about 1 percent of their income. The average tax cut for a household making more than $1 million a year is about $70,000, or a little more than 3 percent of their income.
However, despite these initial tax cuts, in the long run, most Americans will actually see a tax hike, with those in the lower- and middle-class having the greatest likelihood of paying more in taxes. By 2027, 53 percent of Americans will pay more in taxes than they did under the old law. And over the course of ten years, low- and middle-income Americans will bear a lot of the cost of the tax increases. Through 2027, those earning less than $10,000 annually will have paid an additional $1 billion in taxes under this law than they would have under the old law and those earning less than $50,000 will have paid $23 billion more. Those earning more than $100,000 will have saved $1.2 trillion. This is in part because nearly all of the breaks for individuals will expire by 2025, but two provisions in the law that raise taxes on the middle class will stay in effect.
How do the wealthy benefit?
Both in the short- and long-term, wealthier taxpayers receive a much greater tax benefit than anyone else. This year, the largest cuts as a share of income go to those in the top 5 percent of the income distribution. After this year, the tax cuts for most income groups shrink. By 2027, 83 percent of the law’s benefit would go to the top 1 percent of earners, and the wealthiest 0.1 percent would get a nearly $150,000 tax break, on average.