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Republicans promised that their tax overhaul would save money for the middle class, and Rep. Markwayne Mullin, R-Okla., was quick to make the case that it did.
"I’m working alongside the White House and other members in the House to lessen the tax burden that currently weighs on so many Oklahomans," Mullin posted on his congressional blog. "Under the Tax Cuts and Jobs Act, the average American family of four will receive a $1,182 tax cut. Imagine what you could do with $1,182 more in your pocket!"
Mullin's talking point has been popular among House Republicans trying to sell the tax plan. In the past week, we've heard House Speaker Paul Ryan and a Georgia congressman tout the same figure. In each case, they overstated the impact of the tax cut. Mullin did, too, but less so.
Here's what you need to know.
The figure comes from the House Ways and Means Committee, which wrote the tax bill. That committee calculated several scenarios for how the proposal’s changes could affect different types of taxpayers.
The key elements in the committee's calculation involve tax brackets, the standard deduction and the child tax credit.
Currently, there are seven brackets; these would be consolidated into four -- 12 percent, 25 percent, 35 percent, and 39.6 percent.
In the meantime, the standard deduction would be raised from $12,000 to $24,000. And the child tax credit will be increased from $1,000 to $1,600, bolstered by a new $300 credit for parents and other dependents.
The example Mullin highlighted refers to a "family of four making $59,000 per year." Here’s the scenario outlined in the House’s fact sheet, using the fictional example of "Steve and Melinda" with two middle school-aged children:
"As a result of lower tax rates, a significantly larger standard deduction, and an enhanced Child Tax Credit and Family Flexibility Credit, Steve and Melinda will pay over $1,182 less in taxes than last year, reducing their total tax bill from $1,582 to only $400. "That’s more money they can use for whatever is important to them, whether it’s paying bills, purchasing a new refrigerator, or putting away savings for the future."
The Ways and Means Committee said they chose a household income of $59,000 because it’s the median household income nationally. (Mullin talked about families and families are not identical to households, but in Oklahoma, the median family income is about $58,000, so the distinction makes little difference in his state.)
For that amount of income, a family today would get $12,700 from the standard deduction, $16,200 in personal exemptions, leaving $30,100 in taxable income. Of that, $18,650 would be taxed at 10 percent and $11,450 would be taxed at 15 percent, meaning the preliminary tax liability would be $3,582.50. That would be adjusted with $2,000 in child tax credits, producing a final tax liability of $1,582.50.
Under the new tax bill, the family would take a larger $24,000 standard deduction (the proposal eliminates personal exemptions), leaving $35,000 in taxable income. At the 12 percent rate, that would mean $4,200 in preliminary liability. This would be offset by $3,200 in child tax credits and $600 in family credits, leaving a final tax liability of $400. That’s a $1,182.50 tax cut.
So the number adds up, but there are some caveats that show it might not work out this way for all families like Steve and Melinda’s.
The GOP bill eliminates or shrinks a number of widely used itemized deductions, and those factors aren’t taken into account in the figure House estimate.
The deductions eliminated or pared back in the bill include the mortgage interest deduction (for future mortgages, it would be capped at half its previous maximum); the state and local tax deduction (only $10,000 in property tax deductions would be allowed); the medical expense deduction; the casualty loss deduction; and the student loan interest deduction.
For example, nearly 9 million people with high medical bills deduct them on the taxes.
Exchanging these changes for a higher standard deduction may benefit many taxpayers, particularly those who choose not to itemize today. But some taxpayers who depend on these itemized deductions today may end up worse off if the bill is passed as is, even with the higher standard deduction.
For this type of taxpayer, the loss of even one of those deductions could conceivably wipe out that $1,182 gain for certain types of families.
David Kamin, a tax and budget specialist at the New York University law school, told us that the bill has some wrinkles that can turn a tax cut into a tax hike.
Kamin cited a combination of factors, including the sunsetting of the $300 per parent tax credit; the lack of inflation adjustments for the child tax credit, which effectively replace personal exemptions that were indexed to inflation; and the new use of an inflation adjustment measure known as chained CPI, which grows more slowly than the yardstick in current use.
According to Kamin’s calculations, the initial tax cut for the family making $59,000 becomes about a $450 tax increase by 2024 compared to the status quo. Here’s the graph he put together:
Mullin didn’t promise that the initial tax cut would last, as other Republicans have.
After Mullin made his statement, the congressional Joint Committee on Taxation analyzed the tax plan using a different approach. The committee found that while tax collections from people making under $40,000 would fall at first, they would go up in 2023. The groups that would do the best under the plan would be people making between $100,000 and $200,000, and those making over $1 million a year.
Mullin said that the average American family of four would get a tax cut of $1,182. The number is a reasonable estimate, based on certain assumptions.
What might not be obvious is that families who take advantage of deductions today might see their taxes rise. And even those who benefit immediately might see those gains turn into losses after 2023. So if you think this tax cut would be ongoing, or every year, you'd be wrong.
Unlike his colleagues, however, Mullin didn’t outright promise that the initial tax cut would last for more than one year.
Mullin's statement therefore is accurate but needs additional information. We rate it Mostly True.
House Ways and Means Committee, "Taxpayer Examples: How the Tax Cuts and Jobs Act Helps Americans of All Walks of Life," Nov. 2, 2017
David Kamin, "How a Tax Cut Turns Into a Tax Increase," Nov. 2, 2017
PolitiFact, Would the House GOP tax plan save a typical family $1,182?, Nov. 3, 2017
U.S. Census Bureau, Income in the past 12 months, 2015
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