It is little controversial that political fear of the federal budget deficit in Washington often appears politically favorable. For the purposes of this fact-checking, we’re interested in Sanders’ description of the 2017 Tax Act, officially the Tax Cut and Employment Act (TCJA), as “nearly $ 2 trillion in tax breaks for the richest people in this country and the largest Companies. “
The facts
Officially, the non-partisan Joint Tax Committee (JCT) estimated the bill would cut tax revenues by nearly $ 1.5 trillion between 2018 and 2027. However, this was an illusion created by the tax writers who allowed the tax charge to expire within a prescribed amount over a 10 year period with substantial provisions like individual tax cuts a few years before the end of the tax slated period. Assuming a future Congress will extend the tax cuts, as many Republicans have bet, the real cost of the bill would be over $ 2 trillion.
The tax burden was a mixture of tax cuts and tax increases. The individual tax cuts are said to lower taxes by $ 1.1 trillion (albeit higher if extended), while corporate tax cuts are $ 650 billion over a 10-year period – mitigated by about $ 300 billion Dollars raised by international tax reform.
Sanders suggested that all $ 2 trillion go to “the richest people” and “the biggest companies”. His staff did not respond to repeated questions about how he found this out or to an explanation of his definition of “richest person”. So let’s take a look at what analysts found, including some new research.
As we have already explained, a large-scale tax cut will primarily benefit the rich, as they already pay a large part of income taxes. According to the Ministry of Finance, before the tax law was passed in 2017, the top 20 percent of income recipients paid 95.2 percent of individual federal income taxes in 2017. The top 10 percent paid 80.9 percent. The top 0.1 percent paid an astonishing 24.1 percent of taxes.
Since there are far more people in the middle class, fewer dollars per taxpayer will have to be shared when the savings from a tax cut are shared. The JCT estimates that 572,000 taxpayers will file tax returns in an income category greater than $ 1 million, compared with more than 27 million in the $ 50,000 to $ 75,000 category and nearly 70 million in the under $ 50,000 category .
It is a political decision whether or not to extend tax cuts to the richest Americans. However, with every large-scale tax cut, the rich get more money from tax cuts because they already pay a larger share of the tax.
When both the JCT and Tax Policy Center looked at the impact of the tax burden, they concluded that most people would see an overall tax cut in 2018. The Tax Policy Center found that 80.4 percent of all taxpayers would have a tax cut, compared to about 5 percent who would experience a tax increase. In the middle quintile, 91 percent would receive a tax cut averaging $ 1,090, while 7.3 percent would receive a tax increase averaging $ 910.
Regarding individual tax cuts, the Tax Policy Center estimated that 65 percent of taxpayers would receive tax cuts. In the $ 50,000 to $ 75,000 range, 82 percent would receive tax cuts, with people who received a tax cut receiving an average of nearly $ 1,000.
The estimate that most people would receive a tax cut is now confirmed when the finance department’s 2017 data before the law goes into effect is compared to 2019, the second year the law came into effect.
For individual taxpayers, federal income tax revenues declined by around $ 80 billion from 2017 to 2019. The share of federal income taxes around the top 1 percent rose from 44.9 percent to 45.9 percent. Total taxes for this group decreased by $ 21.3 billion, about 27 percent of the total reduction.
That’s less than what this group pays as a percentage of all taxes, which suggests that other taxpayers have been better off.
In fact, the tax burden rose for most of this group – except for the top 0.1 percent. The remainder of the top 1 percent (taxpayers in the 99th percentile to 99.9 percentile) saw total taxes rise nearly $ 9 billion as their share of taxes rose from 20.8 percent to 22.6 percent.
It also means that nearly $ 60 billion in tax cuts have been distributed to everyone in the top 1 percent.
For example, federal income taxes levied on people in the middle quintile of the income spectrum – the 40th to 60th percentiles of taxpayers by income – fell by about $ 13 billion between 2017 and 2019. Their share of income taxes fell from 1.4 percent to 0.6 percent.
(People in this income bracket pay almost as much wage tax as income tax, and the 2017 tax cut had no impact on wage tax. However, when all federal taxes were included, this group saw an overall tax reduction of $ 1.5 billion in 2017 through 2019.)
Let us now turn to the second part of Sanders’ statement – that the remainder of the tax cut went to “the biggest companies”. That is also not entirely true.
Many companies are organized as transit companies, which means that the owners are taxed at their personal tax rate. The 2017 tax law provided for a new deduction for such business owners, but guard rails were added to the law to cut the new tax break for some high-income taxpayers.
A 2019 Treasury Department analysis found that the biggest beneficiaries of the pass-through deduction were the top 5 percent of individual taxpayers. The Treasury Department estimated the tax savings in 2018 at around $ 34.5 billion, but without the guardrails of the richest business owners, it would have been nearly $ 63 billion.
“The majority of the beneficiaries of the deduction are in the bottom 80 percent of the income distribution,” the Treasury analysis said. “However, 60 percent of pass-through income and 72 percent of the legal benefit of pass-through deduction go to taxpayers in the top five percent of adjusted gross income (above approximately $ 208,000). Without the guard rails of 199A, we would estimate that this group would receive 83 percent of the statutory benefit. “
The biggest change for businesses was the cut in the highest corporate tax rate from 35 percent to 21 percent – an average decrease of 40 percent. Presumably, Sanders was referring to this part of the tax bill when he mentioned large companies – and this was certainly a godsend. (Many Democrats had advocated lowering the corporate tax rate, just not as high as the GOP-controlled Congress approved.)
Martin A. Sullivan, chief economist at Tax Analysts and corporate tax expert, concluded that corporate income tax payments to the U.S. Treasury Department fell 31 percent in one year – from $ 283.4 billion in 2017 $ 195.8 billion in 2018. Likewise, the 2019 Wall Street Journal found the median effective global tax rate for S&P 500 companies in the first quarter of 2019 up from 25.5 percent two years ago 19.8 percent has fallen.
Sullivan said the impact of the law on individual companies can vary widely.
“One safe generalization I can make from my job is that large companies with mostly domestic operations outperform companies with many overseas operations,” he said. “In other words, the TCJA has helped all businesses, but people who took advantage of the old international system are now required to pay a new minimum tax on foreign income.”
The Pinocchio test
Sanders wrongly claims that $ 2 trillion in tax breaks went to “the richest people in this country and the biggest companies.” Most Americans received some kind of tax cut across all income brackets. However, the share of tax cuts for the top 1 percent wasn’t as high as the share they pay in taxes – and some of the above-average tax hikes experienced. A new tax deduction for pass-through businesses owned by wealthy individuals was limited.
Much of the tax cut went to large corporations – and the savings were significant. But companies with high foreign income may have received higher taxes, and tax breaks for wealthy people who own pass-through businesses have been limited.
We previously gave four Pinocchios to statements that only the rich benefited from the 2017 tax cut, but Sander’s reference to large corporations reduces our rating to three Pinocchios.
Three pinocchios
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