How did key elements of the 2017 Tax Cuts and Jobs Act (TCJA) affect the after-tax incomes of various income groups? And what would happen to incomes and federal tax revenues if Congress tweaked some of those key provisions?
To see, the Tax Policy Center ran its microsimulation model on more than 9,000 separate combinations of some core provisions of the individual income tax that were affected by the TCJA. By looking at what the law did and comparing it to what Congress could have done instead, TPC’s new tool compares changes in federal revenue and in the after-tax income of households. Even better, the new TPC feature allows you to make some of those adjustments yourself, and see how they would affect federal revenues and the after-tax incomes of various income groups.
For example, the tool shows that for low-income couples with children, the story of the TCJA was largely about the child tax credit. Because the TCJA made more of the credit refundable, it increased the benefit for many low-income families who received little else from the TCJA’s tax cuts since they paid no federal income tax.
But the TCJA could have increased the refundable portion of the CTC even more. The feature shows how that would have provided an even bigger tax cut for those low-income households. Similarly, it shows the relative benefits of other provisions, such as increases in the standard deduction and the effective elimination of personal exemptions.
But it also allows you to adjust some of the parameters on your own. You can change the refundability of the child credit, raise or lower the cap on the State and Local (SALT) tax deduction, or adjust the size of the standard deduction or personal exemptions. You can see how much revenue each change gains or loses, and how it affects the after-tax income of households in various income groups.
In a recent blog post, my colleague Rob McClelland (who helped build the new feature) ran some numbers to see how changes in personal exemption levels, the standard deduction, and the child credit interact with one another. He was trying to answer the question: What would happen to incomes and tax revenues if you tried to restore the personal exemption by making the child credit and standard deduction somewhat less generous than the TCJA did? The tool made it possible to see that while one option generated $92 billion annually, another lost $67 billion.
The lesson Rob learned—and shared in that blog—is one that TPC’s new tool will teach over and over. There really is no free lunch: If you are going to make a tax cut more generous for one income group, you are either going to have to raise taxes for another group, or add to the budget deficit. TPC’s new data viz feature makes that crystal clear.
