There’s little dispute that political angst about the federal budget deficit often appears politically convenient in Washington. For the purposes of this fact check, we’re interested in Sanders’s description of the 2017 tax law, officially the Tax Cuts and Jobs Act (TCJA), as “almost $2 trillion in tax breaks for the wealthiest people in this country and the largest corporations.”
Is that accurate?
Officially, the nonpartisan Joint Committee on Taxation (JCT) estimated the bill would reduce tax revenue between 2018 and 2027 by nearly $1.5 trillion. But that was an illusion created by the tax-writers, who fit the tax bill within a prescribed amount over 10 years by having significant provisions, such as individual tax cuts, expire a couple of years before the end of the period budgeted for the tax cut. If one assumes the tax cuts are extended by a future Congress, as many Republicans were betting, the true cost of the bill would be above $2 trillion.
The tax bill was a mixture of tax decreases and tax increases. The individual tax cuts were said to reduce taxes by $1.1 trillion (though higher if extended) while business tax cuts amount to $650 billion over 10 years — mitigated by about $300 billion raised through international tax reform.
Sanders suggested all $2 trillion went to the “wealthiest people” and “the largest corporations.” His staff did not respond to repeated queries about how he figured that, or an explanation of his definition of “wealthiest people,” so let’s look at what analysts have found, including some new research, regarding the impact on various income levels. (Wealth and income are not highly correlated, but much of the data on the tax bill is based on income levels.)
As we have explained before, any broad-based tax cut is going to mostly benefit the wealthy because they already pay a large share of income taxes. According to Treasury Department data, in 2017, before the tax bill was passed, the top 20 percent of income earners paid 95.2 percent of federal individual income taxes in 2017. The top 10 percent paid 80.9 percent. The top 0.1 percent paid an astonishing 24.1 percent of taxes.
Because there are far more people in the middle class, there are fewer dollars to share per taxpayer when the savings from a tax cut are divvied up. The JCT estimates that 572,000 taxpayers will file returns with an income category of more than $1 million, compared with more than 27 million in the $50,000 to $75,000 category and almost 70 million in the under-$50,000 category.
It’s a policy choice about whether tax cuts should be extended to even the wealthiest Americans. But in any broad-based tax cut, the wealthy will end up with more money from tax cuts because they already pay a larger share of taxes.
Moreover, when both the JCT and the Tax Policy Center looked at the impact of the tax bill, they concluded that in 2018, most people would see an overall reduction in taxes. The Tax Policy Center found that 80.4 percent of all taxpayers would have a tax cut, compared with about 5 percent experiencing a tax increase. In the middle quintile, 91 percent would get a tax cut, averaging about $1,090, with 7.3 percent facing a tax increase averaging about $910.
In terms of just individual tax cuts, the Tax Policy Center estimated 65 percent of taxpayers would get tax cuts. In the $50,000 to $75,000 range, 82 percent would get tax cuts, with people who got a tax cut ending up with an average of almost $1,000.
The conclusion that most people would get a tax cut is confirmed when comparing Treasury Department estimates for 2017, before the law was implemented, with 2019, the second year the law was in effect. (Note: This sentence has been updated to make clear these are estimates.)
For individual taxpayers, federal income tax collections are estimated to have fallen about $80 billion from 2017 to 2019. The share of federal income taxes by the top 1 percent increased, from 44.9 percent to 45.9 percent. The total taxes by this group went down $21.3 billion, or about 27 percent of the overall reduction.
That is smaller than what this group pays as a percentage of all taxes, suggesting other taxpayers fared better.
In fact, the tax burden actually went up for most of this group — all but the top 0.1 percent. The rest of the top 1 percent (taxpayers in the 99th percentile to 99.9th percentile) saw overall taxes go up almost $9 billion, as their share of taxes increased from 20.8 percent to 22.6 percent.
This also means almost $60 billion in tax cuts were distributed to everyone below the top 1 percent.
For instance, federal income taxes collected from people in the middle quintile of the income spectrum — the 40th percentile to 60th percentile of taxpayers by income — fell about $13 billion between 2017 and 2019. Their share of income taxes fell from 1.4 percent to 0.6 percent.
(People in this income category pay almost as much in payroll taxes as income taxes, and the 2017 tax cut did not affect payroll taxes. Nevertheless, when all federal taxes are included, this group experienced an overall reduction of $1.5 billion in taxes paid from 2017 to 2019.)
Now let’s turn to the second part of Sanders’s statement — that the rest of the tax cut went to the “largest corporations.” That’s not entirely correct, either.
Many businesses are organized as pass-through entities, meaning the owners are taxed at their personal rate. The 2017 tax bill created a new deduction for such business owners, but guardrails were added to the law to curtail the new tax break for some high-income taxpayers.
A 2019 Treasury analysis found the biggest beneficiaries of the pass-through deduction were the top 5 percent of individual taxpayers. The Treasury estimated that total tax savings in 2018 was estimated to be about $34.5 billion, but without the guardrails on the richest business owners it would have been almost $63 billion.
“The majority of the beneficiaries of the deduction are in the bottom 80 percent of the income distribution,” the Treasury analysis said. “However, 60 percent of pass-through income, and 72 percent of the statutory benefit of the pass-through deduction, accrues to taxpayers in the top five percent of adjusted gross income (above roughly $208,000). Without the 199A guardrails, we estimate that this group would receive 83 percent of the statutory benefit.”
The biggest change for corporations was the bill’s reduction of the top corporate tax rate from 35 percent to 21 percent — an average reduction of 40 percent. Presumably Sanders was referencing this part of the tax bill when he mentioned large corporations — and this was certainly a big windfall. (Many Democrats had supported a cut in the corporate tax rate, just not as large as the one approved by the GOP-controlled Congress.)
Steven M. Rosenthal, a senior fellow at the Tax Policy Center, argues that the official score for the corporate tax cut hides its true cost because tax-writers included various timing gimmicks to keep within the budget box. “From my perspective, the corporate tax cuts equaled about $1.5 trillion over 10 years,” he said, though he acknowledged other experts disagree with that assessment. “The corporate tax cuts were mammoth, although not reflected fully in the estimates,” he said, adding that “in my opinion, corporate tax cuts mainly benefit corporate shareholders, who are overwhelmingly high income/wealth.“
Martin A. Sullivan, chief economist at Tax Analysts and an expert on corporate taxes, concluded that payments of corporation tax to the U.S. Treasury dropped 31 percent in one year — from $283.4 billion in 2017 to $195.8 billion in 2018. Similarly, the Wall Street Journal in 2019 found the median effective global tax rate for S&P 500 companies declined to 19.8 percent in the first quarter of 2019 from 25.5 percent two years earlier.
Sullivan said that there can be wide variations in how the law impacted individual companies.
“One safe generalization I can make based on my work is that large corporations with mostly domestic operations fared better than those corporations with lots of foreign operations,” he said. “In other words, the TCJA helped all corporations, but folks that had been taking advantage of the old international system now face a new minimum tax on foreign income.”
This finding is further bolstered by a 2020 study conducted by scholars at Duke University, the University of Wisconsin and the University of North Carolina that found that the tax rates of public U.S. corporations fell 7.5 to 11.4 percentage points after passage of the law. “Concealed in this estimate, however, is the fact that corporations did not participate in the tax cut evenly,” the paper concluded. “Purely domestic firms benefited most, while multinationals only benefited from their domestic operations.”
The Pinocchio Test
Sanders is wrong to claim that $2 trillion in tax breaks went to the “wealthiest people in this country and the largest corporations.” Most Americans, across all income spectrums, received some sort of tax cut. But the share of the tax cuts for the top 1 percent was not as much as the share they pay in taxes — and some of the superwealthy experienced tax increases. There were limits placed on a new tax deduction for pass-through businesses owned by wealthy individuals.
A big chunk of the tax cut did go to large corporations — and the savings were substantial. But companies with a lot of foreign income may have ended up with higher taxes and there were limits on tax breaks given to the wealthy who own pass-through businesses.
We’ve previously given Four Pinocchios to statements that only the wealthy gained from the 2017 tax cut, but Sanders’s reference to large corporations reduces our rating to Three Pinocchios.
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