How will the Senate tax bill affect the American people?

Published on December 4th 2017

The tables below show the effects of the recently passed Senate tax legislation across various family types and income groups (to see the impact of the House 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!

 

Family Sub Group:
All Families
Single no kids
Single With Kids
Married No Kids
Married With Kids
Elderly
All FamiliesBottom 5%Bottom 5-20%
5%
Bottom 20%
Second 20%Middle 20%Fourth 20%Top 20%
1%
Top 2-20%Top 1%
Total IncomeAll Incomes$0$0-$8k$0-$8k$8k-$31k$31k-$61k$61k-$113k$113k+$113k-$711k$711k+
Federal Taxes Paid Before Legislation22,7014111964592,1978,34321,18881,25454,201595,278
Federal Taxes Paid After Legislation21,2053971954422,0187,75820,01075,56450,236556,815
Total Tax Changes-1,496-14-1-17-180-585-1,177-5,690-3,965-38,463
% Change in Federal Taxes Paid-6.6%-3.4%-.5%-3.7%-8.2%-7.%-5.6%-7.%-7.3%-6.5%
___
Changes to Individual Taxes-926-8-1-10-123-457-913-3,114-2,779-9,476
___
Rate and Bracket Changes-865-5-1-6-21-322-1,070-2,902-2,007-19,912
AMT Reduction-542-30-4-34-35-52-2,580-2,520-3,702
Standard Deduction Increase-555-15-1-18-267-754-996-743-758-452
Personal Exemption Repeal912131162297911,4582,0662,158304
Special Business Income Deduction-24920245-17-1,404-493-18,707
Child Tax Credit Increase-449-5-1-6-159-426-651-1,002-1,036-359
Deduction Eliminations584202692263432,2851,36419,793
Other Individual Changes425076163542937-118
Estate Tax Reduction-53000000-267-16-5,031
___
Changes to Business Taxes-321-80-9-61-133-248-1,172-693-10,280
___
Business Tax Reform-321-80-9-61-133-248-1,172-693-10,280

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 (JCT) 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. (This is 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 Senate bill are as follows along with their fiscal year 2019 JCT-estimated amount:

Rate and bracket changes (-$130.9 billion)

The Senate bill would maintain seven brackets, albeit with lower rates for most taxable income brackets. The current rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% would change to 10%, 12%, 22%, 24%, 32%, 35%, and 38.6%. The bracket thresholds would change relative to current law as well. For example, the top bracket would not begin for married couples until $1 million, which is approximately double the current threshold. 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 and bracket changes for each record in the microdata is used to allocate the JCT total for rate and bracket changes in the Senate bill.

Reduction in alternative minimum tax (-$82.0 billion)

The Senate bill would reduce the burden of the alternative minimum tax (AMT) by increasing the exemption amounts and exemption phaseout thresholds relative to current law. The tax calculator simulates liabilities after the increased exemption and phaseout thresholds and then compares the liability to the liability calculated after the previous stage (the rate and bracket changes). This difference in simulated tax liability for each record in the microdata is used to allocate the JCT total for AMT changes in the Senate bill.

Modify standard deduction (-$84.1 billion)

The Senate 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 reduction. 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 in the Senate bill.

Repeal of personal exemptions (+$138.1 billion)

The Senate 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 in the Senate bill.

Alternative inflation measure (+$2.2 billion)

The Senate 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 in the Senate bill.

Change in Tax Treatment of Individuals’ Business Income (-$37.7 billion)

The Senatee bill would enact a 23% deduction for pass-through business income (defined as S-corp, partnership, and sole proprietor income) and would put limits on the usage of this tax preference, especially by high-income taxpayers. These restrictions are put in place for certain businesses involved in the service sectors and for those with low wages paid to employees. These restrictions are put in place only for those beyond certain taxable income thresholds. The Senate bill also contains a provision that would disallow the deduction of losses in excess of $500,000 on active pass-through income ($250,000 for single returns). The difference between the simulated tax liability before and after the new special business deduction is used to allocate the JCT total for the proposed special deduction for qualified business income.

Modification of child tax credit (-$68.0 billion)

The Senate bill would increase the nonrefundable portion of the child tax credit from $1,000 to $2,000 and create a new $500 tax credit for non-child dependents. It would also increase the age of a child eligible for the child tax credit by one year to include all children under 18 years of age. It would also increase the phase-out thresholds to $500,000 for all tax returns from the current $75,000 (single)/$110,000 (married). The difference between the simulated tax liability before and after the child tax credit modifications is used to allocate the JCT total for the proposed child tax credit changes.

Reform of itemized deductions (+90.2 billion)

The Senate bill would repeal all itemized deductions with the exception of deductions for charity, mortgage interest, state and local incomes (less than $10,000), and medical expenses. The bill would also repeal the adjustment (i.e., above-the-line deductions) for 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 bill would decrease the AGI threshold for the itemized deduction for medical and dental expenses from 10% to 7.5% in the initial year. The difference between the simulated tax liability before and after these reforms to itemized deductions is used to allocate the JCT total for the proposed itemized deduction reforms.

Other individual tax changes (+$4.1 billion)

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

  • Refundable credit program integrity ($3.2 billion) – allocated by the amount of certain refundable credits claimed
  • Modify exclusion of gain from sale of a principal residence ($0.1 billion) – allocated based on owner-occupied home value
  • Repeal of exclusion for employee achievement awards, etc. ($0.3 billion) – allocated based on wages
  • Repeal exclusion for employer-provided qualified moving expense reimbursements ($0.6 billion) – allocated based on wages
  • Double the deduction for educator expenses (-$0.2 billion)

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

Estate and gift tax reduction (-$8.1 billion)

The Senate bill would reduce estate and gift by doubling the exemption. 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 (-$47.4 billion)

The Senate bill would enact many reforms of business taxation, including most notably a reduction in the corporate tax rate from 35% to 20% effective 2019 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.

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.

Affordable Care Act

We exclude the effect of the removal of the Affordable Care Act’s individual mandate provision, which is included in the Senate bill.