Richest Americans will see biggest windfall from any tax cuts

No matter what changes might come from the latest round of tax reform proposals, the wealthiest slice of Americans will still pay the biggest share of taxes.

And that means they'll also see the biggest benefits from any overall tax cuts.

Lawmakers on Capitol Hill this week began what is expected to be a fierce political battle over a long-awaited White House plan to overhaul the complex U.S. tax code. Despite promises that the benefits of the proposals would flow to middle-class Americans, critics of the "framework" argue that the biggest windfall would go to the wealthiest taxpayers.

Part of the reason is simple math: The richest taxpayers pay, by far, the bulk of all income taxes.

In 2014, the top 1 percent paid just under 40 percent of all income taxes — more than the bottom 90 percent combined (at 29 percent), according to the Tax Foundation, a think tank. That meant the taxes paid by the top 1 percent represented 27 percent of their overall income, a rate that was seven times higher than all taxpayers in the bottom 50 percent, who paid just 3.5 percent of their combined income, according to the group.

That's a big reason the specific provisions of the "framework" would benefit the wealthiest taxpayers far more than those lower on the income ladder.

One analysis, by the left-leaning Center on Budget Policy and Priorities, estimates that the top 1 percent of households — those with incomes above $700,000 — would get about half of the proposed tax cuts, or roughly $150,000 a year on average.

Initial estimates like those are problematic, though, largely because details of the "framework" are still sketchy. For example, while the preliminary nine-page document calls for cutting the existing seven tax brackets down to three, it doesn't spell out income levels for those brackets.
And it holds out the prospect of an additional fourth bracket for the wealthiest taxpayers.

Also unclear is which tax breaks, from the deductions for mortgage interest to charitable donations, might be curbed or eliminated. One of those tax breaks that may be on the chopping block, the deduction of state and local taxes, could hit the highest income bracket the hardest.

Other specific provisions have been spelled out to help those at the bottom of the income ladder, including a doubling of the standard deduction that would shield the first $24,000 of a married couple's income from taxes.

But there are plenty of specific provisions in the initial proposal that would clearly help those at the top of the income ladder. The list includes:

Cutting the top tax rate from 39.6 percent to 35 percent: Unless Congress restores a fourth rate at the top, this change would save a couple with $1 million in taxable income $24,000 a year, according to the CBPP.

A special 25 percent rate for "pass-through" income: This rate would apply to private businesses including partnerships, S corporations, and sole proprietorships, whose owners "pass through" business profits as personal income and currently pay personal income tax rates. The CPBB estimates that 79 percent of this tax cut would flow to filers with incomes above $1 million.

Repealing the estate tax: Most taxpayers don't own enough savings and investments for their heirs to incur taxes on the inheritance. Under current law, the tax doesn't apply to couples who pass along less than $11 million. Only the wealthiest 0.2 percent of estates pay this tax at all, according to the CPBB.

Eliminating the alternative minimum tax: This tax was created to make sure that high-income households couldn't avoid their fair share of taxes by taking large deductions and other tax breaks. Because it wasn't indexed to inflation, it now hits millions of middle-class households. But the wealthiest taxpayers would see the biggest windfall if the AMT is repealed.

WATCH: Ben White on tax reform winners, losers


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