Analysis: Senate Tax Plan Will Reduce Taxes for Most Taxpayers, Gives Biggest Cuts to Moderate-Income Families

A single individual with no dependents earning $30,000 will see their taxes cut by 9 percent

Sen. Mitch McConnell (R-KY) (R) listens to Sen. Orrin Hatch (R-UT) (L) as they attend a press event on tax reform / Getty Images
November 26, 2017

The Senate's Tax Cuts and Jobs Act will reduce taxes for most households and will give the biggest cuts to those with moderate incomes and those with children, according to an analysis from the Tax Foundation.

"To help provide a sense of how the Senate's amended version of the Tax Cuts and Jobs Act would impact real taxpayers, we've run the taxes of nine example households," the foundation states. "Our results indicate a reduction in tax liability for every scenario we modeled, with some of the largest cuts accruing to moderate-income families with children."

The foundation says that each type of family it scored had realistic characteristics so it could show how the bill's individual income tax provisions would impact various types of families with different incomes.

For example, the foundation first scored a single individual with no dependents who earns a salary of $30,000. If this filer takes the standard deduction under current law, this person would likely owe $4,331 in taxes. Under the Tax Cuts and Jobs Act, this filer would instead pay $3,953—a 9 percent cut—and his after-tax income would increase by 1.3 percent.

A single parent with two children earning $52,000 would see her current tax liability decline by 36 percent and her after-tax income increase by 3.6 percent because of the plan's child tax credit. Under current law, this taxpayer would owe $5,198. Under the proposed bill, she would pay only $3,306.

For a couple with two kids earning only one income at about $85,000, taxes for this family could decline by 20 percent due to child tax credits. Under current law this family may owe about $11,035, but under the proposed plan this would drop to $8,782. Taxes for this type of family would see the greatest percentage decline out of all that were scored.

A couple with three children earning a combined income of about $325,000 with charitable contributions of 2.5 percent, $37,000 in retirement contributions, and an $800,000 home paying a property tax rate of 1.25 percent, could see their taxes decline by 10 percent, paying $64,456 instead of $71,629.

For a top-earning married family with two children that has $1 million in income, a $1.5 million home, and $200,000 in a pass-through business, taxes for this family could decline by 8 percent from $318,315 to $292,478.

Married retirees with $48,000 in retirement income fall within a range that is exempt from taxation so their tax liability declines by 8 percent and their after-tax income increases by 0.6 percent.

"All of our sample filers receive a tax cut, but the size of that reduction varies," the report states. "The significantly higher standard deduction, combined with lower marginal rates and a more generous (and more broadly available) child tax credit, drives the reductions in tax liability for low- and middle-income filers."

"A reduction in itemized deductions limits reductions in tax liability for upper-income earners, though these filers benefit from the repeal of the alternative minimum tax," the report states. "Individual income taxes are only one component of the proposed Tax Cuts and Jobs Act, and changes to business taxation could have a significant impact on wages and economic growth. Still, sometimes it's helpful to drill down on one component of reform, and, as these sample taxpayers demonstrate, most taxpayers across the spectrum experience lower tax bills under the Senate proposal."

Published under: Tax Reform