Seeing the forest for the trees: Many won’t benefit from Joint Tax Deal
The Senate floor debate is likely to focus on the false claim that everyone will see more money in their pockets as a result of the joint tax deal released yesterday. The Fiscal Research Division scenarios released yesterday provide examples of 24 taxpayers who would see an income tax cut under this deal. Importantly, 24 taxpayers experience can’t tell us what will happen to all taxpayers.
More recent analysis by Fiscal Research Division of other taxpayers released today provides a case in point. These scenarios show that there are taxpayers who will see their income taxes increase as a result of this plan.
These taxpayers aren’t alone. The loss of deductions and exemptions and the fact that the benefits of the rate reduction disproportionately benefits the wealthiest taxpayers results in certain taxpayers losing just under the income tax changes. For example, if you send your children to child care and once were able to claim the child and dependent care credit, its loss in this plan could make your income tax bill increase. Or perhaps you own a small business; the $50,000 business income deduction is eliminated under the tax deal. Other ways that your income tax load goes up, loss of the Earned Income Tax Credit, no more medical expense deduction, loss of the personal exemption, loss of the standard deduction for seniors and the deduction for retirement income.
Of course, there is also the sales tax expansion. This will impact low- and middle-income taxpayers both directly and indirectly as these taxpayers spend more of their annual income on taxable goods and services. It is also true that businesses, no longer benefiting from sales tax exemptions, will pass on a portion of their increased sales tax to the consumer in the form of higher prices.
More robust analysis for estimating population-level impacts using an economic incidence model shows that when taking into account both the joint tax plan and the loss of the state EITC, taxpayers in the bottom 80 percent will experience a overall tax increase on average next year.
The current tax deal is not tax reform, and when considering that the EITC is also eliminated, it’s not even a tax cut for many families. This most recent rendition of the NCGA tax negotiation is indeed a deal, a sweet one for the wealthy and profitable corporations. Unfortunately it’s a bad deal for most of us.