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Home>GOP Faces Challenge With Tax Overhaul: How to Treat the Rich

GOP Faces Challenge With Tax Overhaul: How to Treat the Rich

GOP Faces Challenge With Tax Overhaul: How to Treat the Rich

09/30/2017

 By Richard Rubin 

WASHINGTON -- Republicans, long champions of tax cuts, face a conflict about how to treat the rich in a tax overhaul.

President Donald Trump has said the tax overhaul won't benefit the wealthy, including himself. Republicans have jettisoned some tax cuts they have long supported for high-income households, leaving tax rates on capital gains and dividends untouched, showing an openness to keep the top tax rate for individuals near its present level of 39.6%, and proposing to cut deductions on state and local taxes that could leave some wealthy households paying more.

However, the top 1% of households would reap significant tax cuts from the plan in other ways, including the proposed repeal of the estate tax, the elimination of the alternative minimum tax, and lower tax rates on corporations and businesses that pay taxes through their owners' individual tax returns.

That has made the Republican tax plan's effects on the wealthy a target from both the left and the right, with Democrats calling it a giveaway to the rich and some conservatives warning that Republicans are forgoing economic growth in the name of avoiding political attacks.

There are benefits for the middle class, too, but they are less specific and subject to change because of details Republicans haven't announced yet. Many households, especially in the upper middle class, may end up experiencing tax increases because the loss of tax breaks would outweigh cuts in tax rates.

The top 1% of households would get an average tax cut of $129,030 in 2018, boosting their after-tax incomes by 8.5% and lowering the share of U.S. taxes they would pay, according to an analysis released Friday by the Tax Policy Center. Overall, Americans would get a 2.1% increase in after-tax income.

"The top income groups will receive the biggest tax cuts," said Eric Toder, co-director of the center.

That analysis includes assumptions about details that Republicans haven't specified yet, including the income thresholds where the tax brackets hit and the size of the child tax credit. Those decisions will shape the impact of the plan. Under Friday's assumptions, the plan would raise taxes on 12.2% of households in 2018, with the biggest concentration of losers in the upper middle class.

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