Wealthy Sacramento-area taxpayers benefited more from Trump tax cuts. Calculate it for yourself
President Donald Trump has said it’s time to consider another tax cut — as evidence mounts that wealthier taxpayers in Sacramento and around the nation benefited a lot more than others from his first one.
“We are going to be doing a major middle income tax cut if we take back the House, and we will be talking about that sometime later,” Trump said earlier this month. Democrats now run the House, while Republicans control the Senate.
The new cut, the president said, would be “mostly devoted to middle income (taxpayers) who have really been big beneficiaries of the (last tax cut) that we did which was the largest in the history of our country.”
But data on the impact of the tax cuts, enacted two years ago, shows in great detail what other studies have found: Those with big six-figure incomes were bigger beneficiaries.
The tax law, approved in Congress two years ago without any Democratic support, reduced individual tax rates and limited many popular itemized deductions, notably state and local taxes, while increasing the standard deduction substantially. It also cut the corporate tax rate.
The Tax Policy Center estimated that 60 to 76% of people would get a tax cut, and the law is credited with simplifying the taxpaying process.
In states with high state and local taxes, it has been less popular. In California, for instance, an estimated 8% of taxpayers will pay more, roughly double the percentage in most other states.
Sanjay Varshney, chief economist at the Sacramento Business Review, said the law’s $10,000 cap on deductions on state and local tax taxes had a bigger effect on most California taxpayers, regardless of income level.
“The SALT (state and local tax) deduction hit California much harder” than other parts of the new law, he said.
The law’s supporters maintain that it helped fuel an economic boom.
“I don’t think it was unfairly skewed to the wealthy. What I hear is there was a dramatic boost to the economy as those tax cuts took effect both in consumer spending and employment,” said Rep. Tom McClintock, a California Republican whose district includes El Dorado County and portions of Placer County.
“I’ve talked to a lot of employers who told me this gave them the ability to expand their operations dramatically,” he said.
While Sacramento has “definitely benefited from the economic cycle and the boom,” Varshney said, it’s unclear whether the tax cut was a major reason.
Economist Chris Thornberg had a more definitive answer. Asked if the cut had a role in stoking local economic growth, he answered quickly: “No.”
Thornberg is founding partner of Los Angeles-based Beacon Economics, which studies regional economies in California.
Tax cuts are doing little, he found, as “the economy is choking on a lack of housing.” As a result, the labor force isn’t growing.
And giving middle and lower income taxpayers a few hundred extra dollars, Thornberg said, is not going to make a big difference.
2018 tax cut analysis for Sacramento area
A congressional district-by-district analysis of benefits by the nonpartisan Tax Foundation found that regardless of the district, the pattern holds: The wealthy got roughly twice as big a break, as measured by the percent change in after-tax income, than those with adjusted gross incomes of less than $200,000.
You can calculate it for yourself here.
Among its findings (all incomes are adjusted gross incomes):
▪ California’s Third District, represented by Rep. John Garamendi, a Democrat. The percentage saved slides downward as incomes go up among lower and middle class earners. Those with incomes of $25,000 to $50,000 saw a 2.9% cut, while those making $100,000 to $200,000 got a 1.8% break. But people making more than $200,000 got a 4.8% cut.
▪ California’s Fourth District, represented by McClintock. The same pattern is evident, as the cut slides from 2.3% for the $25,000 to $50,000 group down to 1.7% for the $100,000 to $200,000 earners. The percentage jumps to 5.1% for those earning more than $200,000.
▪ California’s Sixth District, represented by Rep. Doris Matsui, a Democrat. The slide here is from 2.9% down to 1.8% for the $100,000-$200,000 group, before rebounding to 4.9% for the over-$200,000 group.
▪ California’s Seventh District, represented by Rep. Ami Bera, a Democrat. The cuts range from 2.9% for the $25,000-$50,000 group, slide to 1.8% for the $100,000 to $200,000 incomes before rebounding to 4.9% for the over-$200,000 group.
The Tax Policy Center had similar conclusions. It found taxpayers with incomes below $25,000 would see a tax cut of $40, or 0.3% of after tax income. Those earning $49,000 to $86,000 would get a cut of about $800, or 1.4% of after-tax income.
The percentages keep going up with income, so that those earning between $308,000 and $733,000 get an average cut of about $11,200, or 3.4% of income Those earning more get a cut of about $33,000, or 2.2%.
“The tax cuts were tilted towards higher income households,” said Frank Sammartino, senior fellow at the nonpartisan Tax Policy Center in Washington.
The constituent clamor is clear across the country. “The 2017 Tax Cuts and Jobs Act is not turning like President Donald Trump and the Republicans hoped it would — at least, based on the public opinion data we have to date,” Frank Newport, senior scientist at the Gallup Poll, wrote as the income tax filing season ended in April.
After that 2019 income tax filing deadline — the first time most people filed returns affected by the Trump tax law — Gallup found 49% disapproved of the law while 40% approved. Other independent polls had similar results.
Tax cuts are 2020 campaign issue
Taxpayer groups eagerly dispute the notion that the law helped the wealthy the most.
They note that tracking who benefited depends on what data go into an analysis. They cite a study from Congress’ Joint Committee on Taxation that found the highest percentage tax breaks went to people with incomes ranging from $20,000 to $50,000. The percentages then slide downward as incomes go up.
“If you factor in items such as the estate tax changes or the distribution of the corporate tax cuts, or the new deduction for businesses that declare profits and pay tax through 1040 tax returns, that’s going to show a different picture from examining only taxpayers filing returns with non-business income,” said Pete Sepp, president of the National Taxpayers Union.
But Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy, pointed out that the congressional analysis does not include the new break on estate taxes, which helps the wealthy disproportionately.
The Tax Foundation analysis, released last year, takes into account the impact of corporate and business-related taxes.
Whatever data one uses, a public perception remains — the rich got richer — and the White House and Democrats are actively looking for ways to cut taxes for the middle class. So are congressional Democrats.
“We are going to be doing a major middle income tax cut if we take back the House and we will be talking about that sometime later,” the president said last week. Democrats now run the House, while Republicans control the Senate.
Top Trump economic adviser Larry Kudlow called the push for tax cuts an “informal process” now, one that could jell later in the 2020 campaign.
But Rep. Richard Neal, chairman of the tax-writing House Ways & Means Committee, told McClatchy he saw no further sweeping middle class tax cut anytime soon.
“I think what it (Kudlow’s talk) is is an effort to do is acknowledge the pitfalls of who got what in the 2017 bill. It was pretty lopsided,” the Massachusetts Democrat said.
This story was originally published November 25, 2019 at 5:00 AM.
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