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The Case of the Missing Middle-Class Tax Cut

Posted November 22nd, 2017 to Blog

If Sherlock Holmes were a United States Senator, he’d be on it: “The Case of the Missing Middle-Class Tax Cut.”

We’ve all heard about the suspicious tax cut. It’s been in all the papers, all the social media posts, anywhere the spin merchants can find a way to promote the idea that the proposed massive and permanent tax-cut giveaway to millionaires, billionaires and corporations is somehow a “middle-class tax cut.”


No reliable information can justify the billing. Middle-class and lower-income taxpayers ultimately will — on average — pay more as a result of this legislation if it becomes law.

In Iowa, the Institute on Taxation and Economic Policy (ITEP) has shown that despite some minor benefits upon enactment, the bill when fully phased in will actually result in a tax increase, on average, for the bottom 60 percent of Iowa taxpayers. Higher up the income scale, tax cuts will remain. (In the graph below, average tax changes for the bottom three quintiles of Iowa taxpayers are shown as increases, above the line.)

Someone in Iowa making $1.5 million in 2027 would get about a $4,800 benefit under the ITEP analysis — not a lot to people at that income, maybe a good payment on luxury box rent at the ballgame.

But that break for the top 1 percent would total about $68 million — a hit to services on which the money could be spent on behalf of all.

Millions of Americans — an estimated 13 million — would lose health insurance under this bill, a large share of those not giving up insurance voluntarily, but because they could no longer afford it.

Billion-dollar estates that already have $11 million exempt from tax under current law would see a doubling of that exemption, as if the first $11 million free and clear is not enough while the millions of working families struggle to get by, some at a $7.25 minimum wage that has not been raised in over eight years (in Iowa, 10 years).

A Child Tax Credit designed to help working families with the costs of raising children would be extended to families earning $500,000 a year — as if those families need the extra help, when families making $30,000 get little from the deal. By the way, that is one of the changes billed as a middle-income break, and even it would expire in 2025.

There is no expiration, meanwhile, on the estate-tax break or on new giveaways to corporations.

If you’re looking for a real middle-class tax cut in this legislation, you’d better put Sherlock Holmes on the job. Even then, anything you find has an expiration date, plus tax increases. And the millionaires’ cuts that remain will clamp down on resources for the essential things that government does to protect and assure opportunity for us all, and our nation’s future.

You cannot afford to do both — provide critical services and also cut resources to pay for them.

It’s elementary.

Mike Owen, executive director of the Iowa Policy Project

Senate plan hurts poor, middle

IFP News: New estimates show big tax cuts for millionaires, tax hikes at middle and below for Iowans

IOWA CITY, Iowa (Nov. 20, 2017) — The bottom-earning 60 percent of Iowa taxpayers would see a $58.7 million tax increase in 2027 with what is being billed as a middle-class tax cut in Congress, while permanent tax breaks for millionaires would drive up deficits and drive millions of Americans off health insurance.

“A weekend of further scrutiny by responsible analysts shows just how much this legislation is skewed toward the wealthy and most powerful,” said Mike Owen, executive director of the nonpartisan Iowa Policy Project (IPP).

“When you look beyond the early years of this plan, you see that low- and middle-income Iowans are whacked by this plan in 2027. They’ll pay more in tax, on average, and many will have lost their health insurance while millionaires, billionaires and corporations bank the benefits.”
In addition, the nonpartisan Institute on Taxation and Economic Policy (ITEP) has released new estimates showing that for Iowa, well over half of the tax reductions would go to the top 20 percent in 2019 under the Senate Finance Committee plan, and that Iowans in the bottom 60 percent would see an overall net increase in taxes despite proponents’ claims of the plan benefiting the middle class.
 For the middle 20 percent of Iowans in 2027, with an estimated average income of $72,400, there would be an average tax increase of $40. ITEP projects the majority of taxpayers in the bottom 60 percent would see small tax cuts, but the share seeing increases would, on balance, pay more than the reductions.
“The point is not the size of the increase at those levels, but the fact that those taxpayers cannot expect any, or any substantial, tax benefit,” said Anne Discher, interim director of the nonpartisan Child and Family Policy Center in Des Moines.

“Meanwhile, the very wealthy will benefit, services inevitably will be cut for all, and — if the individual mandate on health insurance is repealed — health insurance will be out of reach for millions,” she said.

The full ITEP report is here:

The bill would provide nearly half of total tax benefits in 2019 to the top 20 percent of households. The top 1 percent would receive tax cuts averaging over $32,000, or about 39 times the average tax cut in the middle 20 percent.
By 2027, the disparity would be even more stark: The top 1 percent would get a tax cut of $4,770 on average as several breaks expire — but the middle 20 percent would see the tax increase of $40.
One of the key pieces of the legislation is an expansion of the Child Tax Credit (CTC), which provides only minimal and temporary help to families that need it the most, but extends eligibility to those who do not need it at all. While the previous proposal raised the limit to qualify for the CTC to $1 million, the Finance version limits eligibility to $500,000 — still far above the current $150,000 limit for what is considered a work support to help parents.

IPP and CFPC are nonpartisan, nonprofit Iowa-based organizations that collaborate as the Iowa Fiscal Partnership on analysis of public policy choices affecting Iowans, particularly those in working families and at low incomes. Find reports at