WV Center on Budget and Policy > Blog > Taxes > GOP-Trump Tax Framework Is a Big Tax Cut for the Wealthy, Leaving Little for Everyone Else

GOP-Trump Tax Framework Is a Big Tax Cut for the Wealthy, Leaving Little for Everyone Else

The tax framework released last week by President Trump and Republican congressional leaders would result in huge tax cuts for the wealthiest households, while offering little to middle- and lower-income families. In West Virginia, the richest one percent of residents would receive 39.1 percent of the tax cuts within the state under the framework in 2018, according to the Institute on Taxation and Economic Policy. These households, with incomes of at least $358,800, would receive an average tax cut of $27,800 in 2018.

The tax framework largely benefits the wealthy because the plan:

  • creates a lower rate for “pass through income,” creating a tax loophole that mostly benefits millionaires;
  • cuts the top income tax rate for the wealthiest taxpayers;
  • eliminates the estate tax, which only affects the wealthiest 0.2 percent of estates, or couples with estates of $10 million or more;
  • cuts the corporate tax rate, which largely benefits corporate shareholders and senior executives;
  • eliminates the Alternative Minimum Tax, which was designed to ensure high-income earners pay a minimum level of taxes.

The tax plan would particularly benefit those with incomes greater than $1 million. These households make up just 0.1 percent of West Virginia’s population but would receive 22 percent of the tax cuts if the plan was in effect next year. Those with incomes over a million dollars would receive an average tax cut of $178,900 in 2018 alone.

In contrast, the middle class would not see much benefit from the tax plan. The middle fifth of households in West Virginia, people who are literally the state’s “middle-class,” would receive just 7.3 percent of the tax cuts that go to West Virginia under the framework. In 2018 this group is projected to earn between $33,500 and $52,700. The framework would cut their taxes by an average of just $260.

If the framework was in effect in 2018, 8.4 percent of of West Virginia households would actually see a tax increase. While the tax framework increases the standard deduction, it repeals the personal exemption and most itemized deductions. This means that families who itemize their deductions instead of claiming the standard deduction may end up paying more in taxes under the plan.

Unlike the clear and concrete proposals that benefit the wealthiest taxpayers, the GOP-Trump tax framework is much more vague about the changes that would affect low- and middle-income people. The provisions that may benefit the middle class, such as the increased standard deduction and changes to the Child Tax Credit, are offset by other provisions, like raising the bottom income tax rate from 10 percent to 12 percent and repealing personal exemptions. The plan also leaves out key details of the Child Tax Credit changes. Additionally, the plan does nothing to to expand the Earned Income Tax Credit (EITC), which is arguably the most important provision in the tax code for working families.

The plan says “the committees will work on additional measures to meaningfully reduce the tax burden on the middle-class,” but it is clear from details of this framework, and previous GOP plans, that the main goal is large tax cuts for the wealthy, with low- and middle-income families as just an afterthought.

 

Leave a Comment