ELISE HU, HOST:
Both the House and Senate advanced their tax overhaul plans last week. The full House passed its tax bill, and the Senate Finance Committee approved its version. That'll be taken up by the full Senate after Thanksgiving. Republicans from President Trump to congressional leaders are selling the bill as a middle-class tax cut. Here's House Speaker Paul Ryan describing the House plan.
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PAUL RYAN: This plan is for the middle-class families in this country who deserve a break.
HU: But analysis by Congress' nonpartisan Joint Committee on Taxation finds that's not the case. NPR economics correspondent John Ydstie joins us to talk about where the benefits of those tax cuts will really fall. So, John, are these plans focused on the middle class as Speaker Ryan suggests?
JOHN YDSTIE, BYLINE: Well, Elise, the short answer is no. In the case of both the House and Senate bills, the largest and most long-lasting tax cuts will go to businesses.
HU: So break this down for us.
YDSTIE: Well, let's talk about the House bill first. It is true that starting in 2018 the vast majority of American taxpayers will get a tax cut under the House bill. However, the middle class will get relatively modest tax breaks in dollar terms initially, and then over the next decade those modest cuts will shrink dramatically.
HU: Can you give us an example of how this works?
YDSTIE: Well, let's talk about the heart of the middle class. Households are earning between $46,000 a year and $86,000...
HU: OK.
YDSTIE: ...A year. They'd initially get an average tax cut of about $800, according to the analysis by the Tax Policy Center. But by 2027, that tax cut will be worth less than half of that $800.
HU: Why does the tax cut shrink?
YDSTIE: A significant piece of the tax cut is a family credit, and that expires after five years.
HU: So, John, let's talk about people at the top. Give us an example of how the wealthy would fare under the House bill.
YDSTIE: Well, let's talk about the top 1 percent of households.
HU: And real quick, what is the top 1 percent?
YDSTIE: Those are households that make three-quarters of a million dollars and up.
HU: OK.
YDSTIE: And they would get an average $37,000 tax cut to start with. And by 2027, that would grow to around $62,000.
HU: So the tax cut at the top increases while for folks in the middle it shrinks. Why?
YDSTIE: Well, it's because lots of high-income people own their own businesses where the profits are taxed as individual income. And these new tax proposals would give special tax cuts to those business owners that aren't available to people who are just employees. And that's one reason Congress' Joint Committee on Taxation says that under the House plan almost 75 percent of tax benefits flow to businesses.
HU: But we should point out one reason for the big discrepancy in the size of the tax breaks, those numbers that you were talking about, is that the wealthy pay far more in dollar terms in taxes to start with than the middle class does.
YDSTIE: That's absolutely true. But even if you simply look at the percentage changes in after-tax incomes, the wealthy still do better there as well.
HU: What about the Senate version? Who would benefit most from that bill?
YDSTIE: Well, there again the short answer is businesses. As in the House bill, corporations get a reduction in their tax rate from 35 percent down to 20 percent. And it is permanent. Meanwhile, most individuals get a tax cut to start with, but by 2025, tax breaks for individuals expire, so taxes go up. So no question about it - both these tax bills are primarily focused on business tax cuts, not middle-class tax cuts. Now, Republicans would argue that the business tax cuts will boost growth and benefit everyone. However, claims like that for previous tax cuts under George W. Bush and Ronald Reagan did not materialize.
HU: That's NPR's John Ydstie. Thanks, John.
YDSTIE: You're welcome. Transcript provided by NPR, Copyright NPR.
