The House of Representatives has formally introduced its tax reform bill, The Tax Cuts and Jobs Act. The bill, like the tax reform framework it is based on, heavily favors the wealthy. The bill includes some provisions that raise taxes and some that cut taxes, so the net effect for any particular family’s federal tax bill depends on their situation. Some of the provisions that benefit the middle class — like lower tax rates, an increased standard deduction, and a $300 tax credit for each adult in a household — are designed to expire or become less generous over time. Some of the provisions that benefit the wealthy, such as the reduction and eventual repeal of the estate tax, become more generous over time. The result is that by 2027, the benefits of the House bill become increasingly generous for the richest one percent compared to other income groups.
In West Virginia, the middle 20 percent of income-earners, the group that is quite literally the “middle-class,” would receive nine percent of the benefits in the U.S. in 2018 and just seven percent of the benefits in 2027, according to an analysis from the Institute on Taxation and Economic Policy. In other words, in 2027 the middle fifth of West Virginians would receive only one fourth of the benefits received by the richest one percent of Americans.
The richest one percent of West Virginians would enjoy an average tax cut of $18,830 in 2018, and this average tax cut would rise to $21,090 in 2027. The middle fifth of income-earners would receive an average tax cut of $450 in 2018, which would fall to $240 in 2027. Only the top one percent of West Virginians would see their tax cut grow over time, for everyone else, the size of the tax cuts shrinks by 2027.
Even when measured as a percentage of income, the richest one percent receive a larger average tax break in 2018 and 2027 than any other income group. In West Virginia, the richest one percent receive an average tax cut equal to about 2.6 percent of their income in 2018 and 2027. The middle fifth of income-earners receive a break equal to 1.1 percent of their income in 2018, falling to just 0.4 percent of their income in 2027. By 2027, the size of the tax cut as a percentage of income is 6.5 times greater for the top one percent than it is for the middle class in West Virginia.
In addition, Some households in every income group would face a tax hike under the bill. For example, in 2018, six percent of West Virginia households in the middle fifth of the income distribution would face a tax hike, rising to nine percent of these households in 2027. This would occur because several provisions in the bill raise revenue by repealing or limiting tax breaks that benefit the middle-class, and for some households the loss of these tax breaks would not be offset by the new tax breaks introduced in the bill.