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As Republican lawmakers seek to gain momentum for "tax cut 2.0" -- legislation to expand the tax law signed in December by President Donald Trump -- they have returned to tax-related messaging. One tweet by a prominent House Republican latched on to a new study of the tax law’s impact.
On July 23, House Majority Leader Kevin McCarthy, R-Calif., sent a tweet touting the benefits of the tax changes, which were passed exclusively with Republican support.
"ZERO Democrats voted for this → ‘Trump tax cut benefits all congressional districts, up to $44,697 per family,’" McCarthy tweeted.
The gist of the Heritage study is that, thanks to the tax law, "in 2018, taxpayers will save an average of $1,400, and married couples with two children will save $2,917. Over the next 10 years, because of a larger economy driven by tax cuts and the tax cuts themselves, the typical American household will benefit from more than $26,000 more in take-home pay, or $44,697 for a family of four."
We don’t doubt that taxpayers in every congressional district will benefit in some way from the tax law. However, McCarthy glosses over some of the study’s nuances. Let’s take a closer look.
The word to focus on in the Heritage study is "average." It appears 121 times in the 27-page report. By contrast, the term "median" doesn’t appear at all. Here’s why that matters.
When you compute an average (specifically, the "mean") of a set of numbers, you calculate the sum of everything, then divide that by the number of items. But when you compute the median, you line up all of the items from smallest to largest, then choose the midpoint. For something like the tax bill, which has significantly different impacts on different types of taxpayers, the measurement you use can make a significant difference.
As we have noted, the tax law provides a disproportionate share of its benefits to wealthier taxpayers. Lower- and middle-income taxpayers do get tax cuts under the law -- something we’ve fact-checked Democrats for downplaying -- but all told, the tax bill does skew favorably toward the wealthy. That’s not a surprise -- under the United States’ progressive tax system, richer taxpayers foot a disproportionate share of the tax bill. Still, it’s a notable feature of the law.
Here’s an analysis of the size of the average tax cut for each income group, compiled by the Urban Institute-Brookings Institution Tax Policy Center. For 2018, the average tax cut for the middle 20 percent of the income scale is $780. That’s much less than it is for the top one-fifth of the income scale -- $5,790 -- and compared to the top 1 percent, at $32,650, it’s positively paltry.
In Heritage’s methodology, these very large tax refunds are factored into the calculations. If a median had been used, the expansionary effect of those large amounts on the "typical" figure would have been muted.
"Because of the high-dollar value of the tax cuts received by many wealthy households and the fact that there are fewer wealthy households than low-income households, the average tax cut is going to be higher than the median tax cut," said Patrick Newton, a spokesman for the Committee for a Responsible Federal Budget.
Tax experts said it’s not clear that Heritage could have computed a true median with the data available. But other groups have come up with other ways to weed out the impact of very large tax savings when producing a measurement of a typical tax cut.
The Tax Policy Center is one of them. As we noted, the Tax Policy Center found that the average tax cut for the middle 20 percent of the population was $780. That’s a fraction of the analogous figure in the Heritage study, $1,400.
Another group that made a similar assessment, the liberal-leaning Institute for Taxation and Economic Policy, found a figure in line with the Tax Policy Center -- $800 for the middle 20 percent.
"Certainly only looking at the average tax change is not reflective of what the ‘median’ taxpayer will experience," said Joe Rosenberg, a senior research associate at the Tax Policy Center.
Adam Michel, Heritage’s tax policy analyst, told PolitiFact that they did not calculate a median, but added that "we are not unique in using averages," citing both Congress’ Joint Committee on Taxation and the Tax Policy Center.
"That said, every statistic, both median and mean, gives you different information," Michel said.
He added that an alternative approach -- looking at the tax cut as a percentage of income in every congressional district, rich and poor -- shows that lower-income districts actually saw tax cuts account for a larger percentage of income than higher-income districts did.
A final note: McCarthy’s use of the $44,697 figure is a bit overheated, as well. It refers to a 10-year cumulative figure, using assumptions that the tax cut boosts economic growth. So that figure is neither for a single year, nor is it guaranteed to pan out.
McCarthy’s office did not respond to inquiries.
McCarthy said, "Trump tax cut benefits all congressional districts, up to $44,697 per family."
The benefits McCarthy is talking about are added up over 10 years, something that is readily apparent. The number does come from a real study -- and McCarthy is careful to hedge by saying "up to" -- but he glosses over significant nuance. The actual one-year, per-household tax cut in the study he cited is $1,400, and even that is exaggerated because the study uses averages, which give greater weight to big tax cuts at the top of the income scale than a median would have. Estimates by other organizations suggest a middle-income household would save between $780 and $800 per year.
We rate the statement Half True.
Kevin McCarthy, tweet, July 23, 2018
Heritage Foundation, "Tax Cuts in Every Congressional District in Every State," July 23, 2018
Urban Institute-Brookings Institution Tax Policy Center, "The Effect of The TCJA Individual Income Tax Provisions Across Income Groups and Across the States," March 28, 2018
Institute for Taxation and Economic Policy, "The Final Trump-GOP Tax Plan: National and 50-State Estimates for 2019 & 2027," Dec. 16, 2017
MarketWatch.com, "Here’s what’s in House Republicans’ ‘tax reform 2.0’ package," July 24, 2018
PolitiFact, "Who wins and who loses from the tax bill?" Dec. 19, 2017
Email interview with Adam Michel, tax policy analyst for the Heritage Foundation, July 26, 2018
Email interview with Patrick Newton, spokesman for the Committee for a Responsible Federal Budget, July 25, 2018
Email interview with Joe Rosenberg, senior research associate at the Urban Institute-Brookings Institution Tax Policy Center, July 25, 2018
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