Published on November 28, 2017

The tables below show the effects of the recently passed House tax legislation across various family types and income groups (to see the impact of the Senate legislation, click here). Tables are prepared using the official score provided by the Joint Committee on Taxation (JCT) for fiscal year 2019. Choose a family type and income quintile to learn more!

Methodology

This document describes the methodology of the USAFacts tax reform cohort tables available here and here. For a general methodology of USAFacts cohort tables, click here.

We begin with the official revenue score of each tax provision provided by the Joint Committee on Taxation for fiscal year 2019. Each JCT revenue category amount is allocated to each family economic unit in our microdata set using an allocator. Most of the allocators are created using a tax calculator that simulates the change in tax liability for each provision for each of the records in the microdata set. Specifically, the calculator first calculates tax liability under current law and then incrementally adds each major provision to get the tax change from that provision. The order is identical to the order presented for major provisions by JCT in its revenue score with the exception of AMT repeal, which is the second provision (based on correspondence with the committee.) We use tax year 2019 law in the calculator as the allocators for the fiscal year 2019 JCT scores.

The provisions and their allocators for the House bill are as follows along with their fiscal year 2019 JCT-estimated amount:

Rate and bracket changes (-$96.4 billion)

The House bill would collapse the current seven tax brackets into four tax brackets with rates of 12%, 25%, 35%, and 39.6%. The 12% bracket would phase-out for tax returns with incomes exceeding $1.2 million for married couples ($1 million for single returns). The tax calculator simulates new tax liabilities under these new rates and brackets and then subtracts this new tax liability from the current law liability. This difference in simulated tax liability of current law versus post-rate/bracket changes for each record in the microdata is used to allocate the JCT total for rate and bracket changes.

Repeal of alternative minimum tax (-$72.8 billion)

The House bill would eliminate the alternative minimum tax (AMT). The tax calculator simulates new tax liabilities with a repeal of AMT in addition to the rate and bracket changes described above. The difference between the simulated tax liability before and after AMT repeal for each record in the microdata is used to allocate the JCT total for AMT repeal.

Modify standard deduction (-$85.2 billion)

The House bill would increase the standard deduction, nearly double their current values. The tax calculator simulates new tax liabilities with the modified standard deduction in addition to the rate and bracket changes and AMT repeal. The calculator assumes that all tax returns choose the greater of itemized deductions or standard deduction. This provision would thereby lead to many tax returns moving from itemizing to taking the standard deduction. The difference between the simulated tax liability before and after the standard deduction modifications is used to allocate the JCT total for the standard deduction modifications.

Repeal of personal exemptions (+$141.4 billion)

The House bill would repeal the use of personal exemptions, which currently reduces taxable income by $4,050 per person claimed on a tax return (primary, spouse, and dependents). This provision would thereby increase the amount of income that is subject to taxation. Currently, high-income taxpayers are phased out from personal exemptions, which means that this provision does not affect high-income tax returns as much as middle-income returns. The difference between the simulated tax liability before and after the personal exemption repeal is used to allocate the JCT total for the personal exemption repeal.

Alternative inflation measure (+$2.1 billion)

The House bill would change the inflation metric that is used to annually adjust various tax parameter such as tax brackets and the standard deduction. Using chained CPI as proposed would likely lead to smaller inflation adjustments, and thereby gradually higher tax liabilities relative to what would exist under the current inflation metric (CPI-U). It should be noted that this provision has a very small effect in the initial years but a larger effect in latter years due to compounding. The difference between the simulated tax liability before and after the inflation metric change is used to allocate the JCT total for the inflation metric change. In the USAFacts cohort tables, this item is included with other tax changes.

25% maximum rate for pass-through businesses (-$51.6 billion)

The House bill would reduce the maximum tax rate on some portion of pass-through business income to 25%. Based on the JCT description of the provision, we assume that 30% of pass-through income (defined as S-corp, partnership, and sole proprietor income) would be eligible for the lower rate. The difference between the simulated tax liability before and after the 25% maximum rate on business income is used to allocate the JCT total for the new 25% maximum rate.

New family credit and increase in child tax credit (-$85.9 billion)

The House bill would increase the nonrefundable child tax credit from $1,000 per child to $1,600 per child and create a new nonrefundable family credit that equals $300 per individual on a tax return excluding children (i.e., primary taxpayer, spouse, and non-child dependents). The House bill would also increase the threshold at which the child tax credit is phased out and begin to index the threshold for inflation. The difference between the simulated tax liability before and after the new family credit and child tax credit increase is used to allocate the JCT combined total for the new family credit and the child tax credit increase.

Education tax changes (+6.3 billion)

The House bill would eliminate some tax preferences for education and consolidate others. The deduction for student loan interest would be eliminated along with the deduction for tuition and fees paid and the lifetime learning credit. An expanded refundable American Opportunity Credit would remain with an additional fifth year of eligibility added. The difference between the simulated tax liability before and after the education tax changes is used to allocate the JCT total for the education tax changes (the total of all of them). It should be noted that for this category, unlike the others, there are both taxpayers facing tax increases and tax decreases within this category.

Reform of itemized deductions and repeal of certain adjustments (+$104.0 billion)

The House bill would repeal all itemized deductions with the exception of deductions for charity, mortgage interest, and real estate taxes paid. In addition to these changes, the deduction for real estate taxes paid would be capped at $10,000. The bill would also repeal some adjustments (i.e., above-the-line deductions) such as those for educator expenses and moving expenses. The bill would also repeal the limitation on itemized deductions (i.e., the so-called Pease provision) currently in place for high-income taxpayers. The difference between the simulated tax liability before and after the changes to itemized deductions and certain adjustments is used to allocate the JCT total for the proposed tax changes (the total of all of them).

Other individual tax changes (+$8.7 billion)

The House bill contains some other relatively small tax changes that would affect individual income tax collections. These include the following with FY 2019 values:

Repeal of credit for new qualified plug-in vehicles ($0.1 billion) – allocated to tax returns claiming alternative motor vehicle credit

Refundable credit program integrity ($4.6 billion) – allocated by the amount of certain refundable credits claimed

Modify exclusion of gain from sale of a principal residence ($1.7 billion) – allocated based on owner-occupied home value

Repeal of exclusion for employee achievement awards, etc. ($0.3 billion) – allocated based on wages

Repeal of exclusion for qualified moving expense reimbursement ($0.6 billion) – allocated based on wages

Reduction in minimum age for allowable in-service distributions ($1.3 billion) – allocated based on retirement income

Modification of rules relating to hardship withdrawals from cash or deferred arrangements ($0.1 billion) – allocated based on retirement income

Note: the inflation adjustment is also included in this category in the cohort tables.

Estate tax repeal (-$8.5 billion)

The House bill would reduce estate and gift taxes in the initial years and then eventually repeal them in 2024. Estate tax changes are allocated using a simulated estate tax variable that is calculated using estimated wealth for each family. The estate tax changes are virtually all allocated to the top income groups.

Business tax reforms (-$89.5 billion)

The House bill would enact many reforms of business taxation, including most notably a reduction in the corporate tax rate from 35% to 20% and a reform of international taxation. The combined JCT total of business tax reforms and international tax reforms is allocated to family economic units on the basis of both their share of labor income and capital income. We allocate 50% of this category on the basis of labor income and 50% on the basis of capital income.

Other tax changes (+$0.4 billion)

The House bill contains a small amount of other tax changes affecting tax-exempt organizations. These changes are allocated to family economic units on a per capita basis.

Comparisons to other organizations

These cohort tables are similar but may differ slightly from distributional tables put forth by other organizations such as the Joint Committee on Taxation (JCT), Tax Policy Center, Tax Foundation, Citizens for Tax Justice, etc. for a variety of reasons, including unit of analysis, income measures that organize the tax units, which federal taxes are included, tax incidence assumptions, extrapolation assumptions, and other methodological differences.

Total Income Definition

In these tables, total income is measured as the sum of average wages and salaries, average supplements to wages and salaries, average self-employment income, average interest income, average rental income, average s-corp income, average dividend income, average capital gains income, average net retirement income, average other market income, and all government income minus refundable tax credits.

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