Lawmakers in our nation’s capital are set to consider a sweeping package of tax changes that appears to mostly overlook families struggling to make ends meet, both nationwide and here in Georgia. A new nonpartisan analysis of the initial tax plan released by Congressional leaders and the Trump Administration reveals the bulk of potential benefits are likely to flow to a small sliver of wealthy taxpayers, shareholders and profitable corporations, with only a paltry gain left over for the middle class and everyone else. The tax cuts also appear set to cost hundreds of billions of dollars a year over the coming decades, likely leading to sharp reductions in money available for crucial services like health care and college aid.

First some basics. Congressional Republicans and the president are zeroing in on revising the nation’s tax system as the next big priority after the failed effort to repeal the federal health care law and slash Medicaid. Their plan to reconfigure the U.S. tax system released Sept. 27, 2017 outlines the primary changes lawmakers are set to consider, such as big tax cuts for large corporations and lower marginal rates for higher incomes.

In short, it proposes to collapse the current system’s seven personal income tax rates to three, creating new rates of 12, 25 and 35 percent to replace today’s brackets that range from 10 to 39.6 percent. The plan also increases the standard deduction, eliminates the personal exemption, increases the child tax credit, eliminates most itemized deductions, repeals the estate tax on ultra-large inheritances, reduces the corporate tax rate from 35 to 20 percent and enacts various business tax breaks.

This grab-bag of revisions would affect taxpayers in some nuanced ways, but the bottom line is the gains are minimal for Georgians who are already in the middle class or trying to work their way into it.

A detailed analysis by the nonpartisan Institute on Taxation and Economic Policy estimates the middle fifth of Georgia households, or taxpayers earning from $38,400 to $59,600 a year, can expect an average annual tax cut of $260. Households with incomes below that range would see slightly less, probably from $100 to $200 a year on average.

That’s more than pocket change, yet it pales in comparison to the windfall that Georgians already winning out in today’s lopsided economy stand to gain. The richest 1 percent of Georgians, or people with incomes of about $550,000 or above, could see an estimated $83,000 annual tax cut under the current proposal on average. For Georgia’s millionaires, the average tax cut soars to $131,000.

The effect of the tax plan on Georgians with earnings that rank in the upper-middle class is much more modest. Households with yearly incomes from about $100,000 to $230,000 could expect only $220 a year, while those with more sizable earnings from about $230,000 to $550,000 would gain an average of $1,990 a year.

The lopsided nature of the federal tax plan is highlighted in the chart below. The richest 1 percent of Georgia households can expect three-quarters of the benefit, with regular Georgians splitting the leftovers.

Source: Institute on Taxation and Economic Policy

You might hear defenders of the plan say these benefits will trickle down to regular people in the long run as the cuts theoretically spur stronger economic growth. That’s the same kind of magic math that tax-cut activists used to hoodwink Kansas and a few other states that pursued the flawed strategy and came to regret it. Slashing tax rates doesn’t do much to generate new business investment or expand economic growth, either nationally or on the state level.

The far likelier result is the tax cuts to blow a hole in the nation’s finances, with little to no economic gain in return. The tax policy institute estimates the package could drain $234 billion from the federal budget as soon as 2018, an estimate that closely matches another nonpartisan analysis that pegs the total pricetag at $2.4 trillion over 10 years. That big drain on the federal treasury poses immediate danger to critical services like health care for children and the disabled, grants to help young people pay for college and basic food assistance. Those are services that help Georgians make ends meet and work their way up the economic ladder.

Although the president and other federal lawmakers are promising to offset any tax cuts with new revenue raised through eliminating tax breaks or closing loopholes, the tax plan as introduced doesn’t meet that standard. That means the tax cuts are likely to balloon the already growing deficit, which will intensify long-term pressure to slash federal support for basic services and pro-growth investments like scientific research and infrastructure grants even further. 

Congress appears poised to act on a tax overhaul in the next few weeks, once Congress approves a budget resolution that serves as the starting gun for the coming tax debate. Signs indicate the U.S. Senate intends to consider tax cuts under the so-called reconciliation process, the same fast-track maneuver Congress used to try and repeal the Affordable Care Act and slap deep cuts on Medicaid and other health services this summer.

Georgians work hard to put food on the table for their families, keep a roof over their heads and give their children access to good schools. Tax reform, done right, is a way to help middle-class Georgians and other families climb the economic ladder. But the current federal tax plan misses that mark. Georgia’s voters and state policymakers will want to take a close look at the fine print as Congress moves forward in the coming days and weeks. 

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Wesley Tharpe
Wes is GBPI's Research Director, assessing potential ways policy proposals could affect Georgia families and businesses. A native of Fayetteville, Ga., he holds a master’s in public policy from the Johns Hopkins University in Baltimore and a bachelor’s in political science and international affairs from the University of Georgia.

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