House Republicans have touted their tax bill as a plus for typical American families.
In a constituent email forwarded to us by a reader, Georgia Rep. Drew Ferguson wrote, "This week the House released our tax reform legislation to help American families and level the playing field for the American worker. With this plan, the average family of four earning median income ($59,000/year) will receive an additional $1,182 in their pocket every year. Who wouldn't want American families to have more money in their pockets?"
The statement is exaggerating how long the average family of four will enjoy those tax savings.
Ferguson’s office said that he had been citing comment from House Speaker Paul Ryan, whose office told us in a related check that the speaker had been referring to a House Ways and Means Committee analysis. That analysis calculated several scenarios for how the proposal’s changes could affect different types of taxpayers.
The key elements of the Ways and Means calculation involved 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 would be increased from $1,000 to $1,600, bolstered by a new $300 credit for parents and other dependents.
The example 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 told PolitiFact that they chose a household income of $59,000 because it’s the median household income nationally.
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 Ferguson has some mathematical detail to back up the figure. But that’s not the end of the story. Here are the two clearest caveats.
The GOP bill eliminates or shrinks a number of widely used itemized deductions, and those factors aren’t taken into account in the figure Ryan cited.
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.
Exchanging these changes for a higher standard deduction may benefit many taxpayers, particularly those who choose not to itemize today. For households earning around $59,000 a year, more taxpayers do take the standard deduction than take itemized deductions -- but a significant minority, about one-third, do itemize.
For many itemizing taxpayers, those deductions are important -- and under the tax bill, they’re likely to 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.
Ferguson’s statement explicitly said that the $1,182 income boost would happen "every year."
The problem is that the benefits of the tax proposal shrink, slowly but surely, over the next decade for this family.
"The tax cut definitely dissipates over time," David Kamin, a tax and budget specialist at the New York University law school, told PolitiFact.
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 a $500 tax increase by 2024 compared to the status quo. Here’s the graph he put together:
The way Ferguson described the cut was actually stronger than Ryan’s tax cut of "$1,182 a year."
Amy Timmerman, Ferguson’s communications director, said that "the congressman misspoke last week when he cited Speaker Ryan’s example."
Ferguson said that under the House Republican tax proposal, "the average family of four earning median income ($59,000/year) will receive an additional $1,182 in their pocket every year."
This is based on a plausible and transparent calculation, but Ferguson glossed over some context. The calculation doesn’t factor in several itemized deductions that would disappear under the proposal and that could have a significant impact on at least some "typical" families around that income level. And the statement is misleading when it says the family will save $1,182 "every year," since that’s the case in the first year only; after that, the benefit starts to shrink and eventually turns into a tax hike.
We rate the statement Half True.
EDITORS' NOTE, Nov. 6, 2017: We updated this story to remove a reference to an analysis by the Tax Policy Center of the tax plan. That plan is now under review by TPC and the organization asked journalists to refrain from quoting the report until it is revised.