Study: Trump tax cuts pushed Americans up the income ladder
When Congress passed the Tax Cuts and Jobs Act (otherwise known as Trump tax cuts) in 2017, one of its biggest criticisms was that it was a handout for the rich. However, evidence indicates that not only did the bill cut income rates for all tax filers (with middle- and lower-income Americans reaping the biggest gains), but the share of federal income taxes paid by high-income earners increased.
And just recently, a study by the Heartland Institute found that, in addition to reducing the tax burden, the bill also had strong effects on income mobility. That is, it pushed a large number of Americans up the income ladder.
According to data from the U.S. Internal Revenue Service (IRS) comparing outcomes from 2017 to 2018—the first year the tax reform law went into effect—the Tax Cuts and Jobs Act reduced average effective income tax rates for filers in every one of the IRS’s income brackets, with the largest benefits going to lower- and middle-income households.
For example, after accounting for all tax deductions and credits, filers with an adjusted gross income (AGI) of $40,000 to $50,000 received an average tax cut of 18.2 percent.
The IRS data further show the Tax Cuts and Jobs Act appeared to have a strong upward effect on economic mobility. The number of filers with an adjusted gross income of $1 to $25,000 decreased by more than 2 million in just one year, while the number of households reporting incomes higher than $25,000 increased in every income bracket.
The most significant increase occurred in the $100,000 to $200,000 bracket, which included more than one million additional filers in 2018 than in 2017.
This is not too surprising considering that data from the U.S. Census Bureau showed that income levels reached a record high in 2019, while poverty levels reached record lows. The Trump tax cuts, coupled with regulatory changes, spurred growth in the economy, which raised incomes for many Americans.
With a $7.7 billion surplus and some of the highest taxes in the country, Minnesota legislators need to seriously consider reducing the tax burden imposed on Minnesotans. Our state has been lagging most states in growth in recent years. Tax cuts would help unleash Minnesota’s productive potential.