Tax day is around the corner and many Pennsylvanians are busy gathering their W-2s, 1099s and other financial documents to submit their taxes for 2017. Meanwhile, some Congressional leaders are making the case to extend temporary provisions to the Tax Cuts and Jobs Act (TCJA), which will expire after 2025. Republicans pushing for this legislation are spinning it as making permanent the benefits to the middle class. But, don’t be fooled.
A new report from the Institute on Taxation and Economic Policy documents how the extension of these so-called “middle-class tax cuts” will continue to primarily benefit the richest Americans and will leave the poorest 20% paying higher taxes on average in 2026 than if the bill was never enacted. The data for Pennsylvania shows that the combined effect of the permanent provisions of the TCJA plus the proposed extension of the temporary benefits will still skew to the wealthy, just as the original law did. As Figure 1 shows, 72% of the tax cuts (the 2018 TCJA + the proposed extension) would go to the richest 20% in Pennsylvania–those earning more than $133,500 a year. More than half of the tax cuts–52%–would go to the richest 5% in PA, which is those who make more than $277,700 a year (not shown). Meanwhile, the bottom 60% of income earners in PA would see only 12% of the tax cuts (9% for the middle 20%, 3% for the second 20% and -0.2% for the poorest 20%).
Figure 2 breaks these numbers down and shows how the share of the tax changes is distributed for each income quintile by the 2018 Tax Cut and Jobs Act (in blue), the proposed extension in 2026 (in orange) and then the combined impact (in grey). This shows that the proposed extension in 2026 follows the same trend that the TCJA did—that richest Pennsylvanians are the ones who will benefit the most from the tax bill and the extension.
Many of the permanent provisions of the Tax Cut and Jobs Act, like the nation’s largest-ever corporate tax cuts, benefit the rich. While some of the extensions do help the middle class, they also include the extension of other tax cuts that are targeted specifically at the wealthy, like the tax cut for “pass-through” businesses and the estate tax.
Chart 1 breaks down the average tax changes for each income group in Pennsylvania, including the tax change due to the TCJA, the proposed extension and then the combined effect. A couple of notable points jump out from this data.
In 2026, the richest 1% in Pennsylvania will receive, on average, a tax cut of $4,400, but with the proposed extension, they would see an additional $33,500. Combined, the richest 1% would see an average tax cut of $37,890–much more than they would have seen with the TCJA alone.
Under TCJA, by 2026, the bottom 60% of Pennsylvanians would have seen a tax hike. While the proposed extension offsets this somewhat for the middle and second 20%, the proposed extension does not provide enough tax cuts to offset the tax hikes for the poorest 20%. The poorest Pennsylvanians will, on average, still see a tax hike.
With the proposed extension, the richest 1% of income earners in Pennsylvania will see an average tax cut of $37,890 while the bottom 60% will see an average tax cut of $320 (or $26 a month). That is, the richest 1% of Pennsylvanians will see a tax cut 118 times greater than the bottom 60%.
Doesn’t seem like a middle-class tax cut to me. Then or with the extension.