It is quite obvious that the left and most Democrats overwhelmingly favor a progressive tax code, in which the rich pay a larger share of the tax burden. It is also very apparent that the left and Democrats constantly crave more tax revenue so they can spend and redistribute.
For years, figures like Sen. Bernie Sanders (I-VT) and Rep. Alexandria Ocasio-Cortez (D-NY) have championed the message that the wealthy don’t pay their fair share of the nation’s income taxes and that the Tax Cuts and Jobs Act was just a huge tax break for millionaires and billionaires. They also warned that the TCJA would result in less tax revenue and that it would blow a huge hole in the deficit.
The total opposite is true.
According to IRS data, the Tax Cuts and Jobs Act (TCJA) overwhelmingly benefited hardworking Americans earning less than six figures annually while creating a substantial boost in total federal income tax revenue.
As detailed in a new Policy Study by The Heartland Institute, the IRS data show that “lower- and middle-income filers experienced the largest reductions in their tax bills, in terms of the percentage saved per filer.”
You see, two things can be true at the same time. So, the TCJA did lower tax rates for all brackets, which means all Americans, even millionaires and billionaires, received at least some tax savings. However, those rate cuts slashed tax rates at the lower end of the spectrum far more than at the higher end of the spectrum.
Therefore, as the data show, the average filer in the $40,000 to $50,000 bracket paid nearly 19 percent less in income taxes in 2022 than the average filer in the same income bracket before the TCJA. Filers in the $50,000 to $75,000 bracket paid 16.5 percent less in 2022 than they did in 2017. Filers in the $75,000 to $100,000 bracket paid approximately 11 percent less in 2022 than they did in 2017.
And what about those millionaires and billionaires? Well, yes, again, they did receive a small tax rate cut. But their total tax savings paled in comparison to those in the middle class. For example, the average filer in the $5 million to $10 million bracket paid 2.3 percent less in 2022 than the average filer in the same bracket paid in 2017.
On top of that, the TCJA made the tax code even more progressive because the data show it increased the overall tax burden for high earners while reducing the total tax burden borne by lower- and middle-income Americans.
In 2022, every income bracket earning less than $200,000 paid a smaller share of the overall tax burden than they did in 2017. On the other hand, every income bracket above $200,000 paid a greater share of the total income tax burden after the TCJA became law.
Moreover, it is preposterous to say that the wealthy don’t pay their fair share. Based on U.S. Treasury data, “The top 10 percent of income earners pay more than 60 percent of all federal taxes and 72 percent of income taxes, shares that have been increasing over time,” notes the Cato Institute.
Meanwhile, “The lowest-income 20 percent of earners, measured by adjusted family cash income, face average tax rates that are either negative or close to zero. A negative tax rate means the taxpayer is a net beneficiary of the tax system, likely receiving refundable tax credits, such as the earned income tax credit (EITC) and child tax credit (CTC).”
The Tax Foundation found that last year, the top 1 percent paid 40.4 percent of federal income taxes. Perhaps most incredibly, “The top 50 percent of all taxpayers paid 97 percent of all federal individual income taxes, while the bottom 50 percent paid the remaining 3 percent.”
The notion that the rich are not paying their fair share is totally absurd based on the numbers.
It also bears to mention that the data suggest the TCJA increased economic mobility because the number of filers in higher-income brackets increased substantially while those in lower-income brackets decreased.
Finally, when it comes to total tax revenue, it is a mathematical certainty that the TCJA produced more, not less, total tax revenue. The arithmetic is quite simple. In 2017, the IRS collected approximately $3.5 trillion in total tax revenue. By the end of 2022, IRS data show the agency collected nearly $5 trillion in total tax revenue.
Further, according to IRS data, total individual income tax revenues were $1.6 trillion in 2017. In 2022, the IRS reported that total individual income tax revenues exceeded $2.13 trillion.
As time has shown again and again, reducing tax rates results in more economic activity, which increases economic growth and brings in more total revenue. It really is that simple.
Very soon, Congress will vote on whether to extend the TCJA rate cuts, which will expire at the end of the year. Based on the performance of TCJA 1.0, and the fact that TCJA 2.0 will likely include provisions that will eliminate taxes on tips, overtime, and Social Security, one would assume that virtually all Democrats would be on board.
Chris Talgo (ctalgo@heartland.org) is editorial director at The Heartland Institute.