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Measuring the Effects of the Republicans’ Tax Cuts and Jobs Act on Personal Income Taxes

December 1, 2021

Republicans' 2017 tax reform law benefited middle- and working-class Americans the most.

In 2017, President Donald J. Trump and Congress, which was then controlled by members of the Republican Party, passed the Tax Cuts and Jobs Act (TCJA) into law. (Most of its provisions did not go into effect until 2018.)[1]

In a report published by the Tax Foundation less than a week before President Trump signed the TCJA into law, the Tax Foundation noted, “The Tax Cuts and Jobs Act would reform the individual income tax code by lowering tax rates on wages, investment, and business income; broadening the tax base; and simplifying the tax code. The plan would lower the corporate income tax rate to 21 percent and move the United States from a worldwide to a territorial system of taxation.”[2]

During the legislative debates that occurred prior to the bill’s passage, opponents of the legislation—especially congressional Democrats—argued that TCJA would disproportionately benefit wealthy households and businesses, at the expense of lower- and middle-income American families.

For example, Rep. Nancy Pelosi, who now serves as the speaker of the House, said on November 6, 2017, “Despite Republicans’ empty promises to cut taxes for middle class working families, it’s clear that the GOP tax plan for the wealthiest is rich indeed.”[3]

“House Republicans’ tax bill would increase taxes for 12 percent of Americans next year, according to a new report from the nonpartisan Tax Policy Center,” Pelosi added.

“The truth is already catching up with the GOP’s snake oil pitch,” Pelosi concluded. “Instead of pushing a deficit-exploding handout to corporations and the wealthy that increases taxes on millions of hard-working families, Republicans must join Democrats to work on bipartisan tax reform that puts the middle class first.”

More than four years after Pelosi’s dire statements, analysts now have the evidence needed to evaluate whether the TCJA truly was, as Pelosi suggested, nothing more than a “snake oil pitch.” The results are definitive and striking.

According to data from the U.S. Internal Revenue Service comparing outcomes from 2017 to 2018—the first year the tax reform law went into effect—the Tax Cuts and Jobs Act reduced average effective income tax rates for filers in every one of the IRS’s income brackets, with the largest benefits going to lower- and middle-income households. (See Table 1 by clicking "Download the PDF" at the top of this page.)

For example, after accounting for all tax deductions and credits, filers with an adjusted gross income (AGI) of $40,000 to $50,000 received an average tax cut of 18.2 percent.[4]

The IRS data further show that the Tax Cuts and Jobs Act appeared to have a strong upward effect on economic mobility. The number of filers with an adjusted gross income of $1 to $25,000 decreased by more than 2 million in just one year, while the number of households reporting incomes higher than $25,000 increased in every income bracket.[5]

The most significant increase occurred in the $100,000 to $200,000 bracket, which included more than 1 million additional filers in 2018 than it did in 2017.[6]

The IRS data also revealed that higher-income earners paid an even larger share of the total tax burden in 2018 than they did in 2017, indicating that the Tax Cuts and Jobs Act may have made the tax code slightly more progressive. This finding contradicts the countless statements made by Democrats over the past four years criticizing TCJA as legislation that favored wealthier filers.

In 2017, filers earning $500,000 or more paid 38.9 percent of all personal income tax revenues. In 2018, the same income bracket paid 41.5 percent of total income tax revenues.[7]

The available evidence is clear: Based on tax data from 2017 and 2018, the Tax Cuts and Jobs Act reduced taxes for the vast majority of filers, led to substantial improvements in upward economic mobility, and disproportionately benefited working- and middle-class households, many of which experienced tax cuts topping 18 percent to 20 percent.

It appears Nancy Pelosi’s claims of “snake oil” peddling were completely unfounded.


[1] Thomas Kaplan and Alan Rappeport, “Republican Tax Bill Passes Senate in 51-48 Vote,” The New York Times, Dec. 19, 2017, https://www.nytimes.com/2017/12/19/us/politics/tax-bill-vote-congress.html

[2] Tax Foundation, “Preliminary Details and Analysis of the Tax Cuts and Jobs Act,” taxfoundation.org, Dec. 18, 2017, https://taxfoundation.org/final-tax-cuts-and-jobs-act-details-analysis

[3] Nancy Pelosi, “‘The Tax Cut and Jobs Act’: GOP vs. Reality,” speaker.gov, Nov. 6, 2017, https://www.speaker.gov/newsroom/11617-4

[4] See Table 1, which you can find by clicking "Download the PDF" at the top of this page.

[5] See Table 1, which you can find by clicking "Download the PDF" at the top of this page. Figure does not include filers in the “no adjusted gross income” category.

[6] See Table 1, which you can find by clicking "Download the PDF" at the top of this page.

[7] Ibid.

Author
Justin Haskins is the director of the Socialism Research Center and editorial director at The Heartland Institute.
jhaskins@heartland.org @JustinTHaskins