How Much of the Latest Tax Cuts Are Going to the Wealthy?
How Much of the Latest Tax Cuts Are Going to the Wealthy?
The tax cuts are in and the jury is…well…still out. That’s because it all depends on who you ask. In this case, according to the latest report from the Institute on Taxation and Economic and Policy(ITEP), an organization that leans left, the rich keep getting richer.
According to the ITEP report, over the last few years, tax cuts have reduced the federal government’s revenues by trillions of dollars. At the same time, ITEP reports that two-thirds of that money has gone to the top 20 percent of earners. Additionally, ITEP says the latest round of tax cuts from the Tax Cut and Jobs Act (TCJA) will mainly help the rich and may not do much to help the economy, as intended. Tax Code Changes Keep favoring the Wealthy ITEP reports that since 2001, tax code changes have resulted in a $5.1 trillion reduction in tax revenue for the government. According to the report, 65 percent of that lost government revenue has ended up in the pockets of the richest Americans, including 22 percent going to the wealthiest 1 percent. ITEP also notes that by the year 2025, the tax cuts will reach $10.6 trillion. The richest 1 percent of American taxpayers will get $2 trillion of those cuts, according to ITEP.
Tax Share Percentage Also Going Down
Meantime, according to the Institute on Taxation and Economic and Policy’s findings, wealthy taxpayers are also seeing a big reduction in the amount of their income going to taxes. In 2012, the wealthiest Americans (the top 20 percent) received a 4.6 percent tax cut off their income compared to the bottom 20 percent, which received a 3.6 percent tax cut. Things evened out in 2015, but now that the TCJA has passed, the gap is close to the same. The top 20 percent are seeing tax cuts equal to about 4.8 percent of their income. The bottom 60 percent of Americans are receiving cuts of less than 4 percent.
Will the TCJA Boost the Economy?
The Institute on Taxation and Economic and Policy also claims that the latest tax cuts won’t really help the economy grow, either. Of course, proponents argue that with more money coming back to the wealthy they will inject that money into the economy to help it grow. But ITEP points out that researchers at the Federal Reserve Bank of San Francisco have warned that many wealthy taxpayers might not be doing that at the moment.
The problem is the tax cuts arrived when the economy was already doing well. In fact, it has been expanding for the last eight years. And according to recent research, when a fiscal stimulus occurs when the economy is already strong, it tends to have a minimal positive affect on pushing the economy forward.
Time Will Tell
The fact is whenever tax changes occur it takes time to measure their long-term affects. Those on the left will continue to claim that the TCJA only favors the wealthy. While those on the right will contend that the cuts are going to grow the economy. The reality is we likely won’t know the true affects of the tax cut and jobs act for several years to come.
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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
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