The GOP-Backed Tax Bill: A Lose-Now, Lose-More-Later Plan for Low- and Middle-Income Americans

Diana Polson |

GOP-backed tax bills have passed both the House and the Senate. Many of us have already seen charts that show how, under these plans, low- and middle-income families will eventually see their taxes raised (by 2027), while the top 1% sees huge savings (see, for example, the chart below showing the Senate bill’s impact on Pennsylvania). What hasn’t been discussed as much is that these bills are step one in a two-part process, designed to severely cut critical government programs.

As the New York Times reported on December 2, “… Republicans are preparing to use the swelling deficits made worse by the package as a rationale to pursue their long-held vision: undoing the entitlements of the New Deal and Great Society, leaving government leaner and the safety net skimpier for millions of Americans.”

In both versions of the tax bill, federal revenues would decrease by more than $1.4 trillion in the next decade, primarily because of tax cuts to the wealthy and corporations. But, as a new report from the Tax Policy Center (TPC) shows, federal tax cuts are not free. Tax cuts will need to be paid for with higher taxes or lower spending.

Given the GOP’s stated priorities, these tax bills are a not-so-veiled attempt at cutting spending.

in the long run, the TPC report shows that, once you consider plausible ways of financing the tax cut, low- and middle-income people will end up worse off – “in other words, they will lose more from the financing mechanisms than they will gain from the tax cuts themselves.”

We don’t know exactly how the Republicans will choose to pay for this tax plan with spending cuts. What they have called for is cuts to entitlements, including Social Security, Medicare, Medicaid, SNAP (Food Stamps) as well as to other programs such as community development block grants, and funds to help low-income people pay their heating costs in winter.

Given uncertainty about where the cuts will come, we can only estimate their impact by looking at the overall impact of spending cuts on household incomes. The chart below shows how U.S. taxpayers at different income levels will fare in 2019 if the Senate bill goes through as is (see the yellow bars). The red bars show how much taxpayers would lose if each household were to pay for the tax cuts equally. (In fact, middle- and low-income taxpayers who depend more heavily on government programs will likely pay more for the tax cuts than higher-income families.)

The bottom 60% of households will be, on average, net losers, while the richest will continue to gain. The poorest will be the hardest hit – nearly all households in the bottom fifth (with incomes less than $25,400) would lose money, seeing on average an 8.1% reduction in their after-tax incomes (a loss of about $1,170). Pennsylvanians will see similar trends.

These calculations underestimate the burden on low- and middle-income Americans who are likely to pay disproportionately for the tax cuts if Republicans have their way and cut Medicare and Social Security. The calculations also do not take into account the rising cost of health care if the Affordable Care Act’s individual mandate is repealed. With the individual mandate repeal, our rough estimate is that in 2019 almost 100,000 Pennsylvanians whose incomes are too high to receive a subsidy to purchase insurance in the ACA marketplace will see premiums increase by $876 per year. Up to 500,000 could lose insurance altogether.

And, finally, this chart looks at the impact of the tax bill with offsets in 2019 when individual tax cuts are in place. However, as the first chart in this post shows, by 2027 when the individual tax cuts have expired, those in the bottom 60% will be paying more taxes than they would under current law.

This GOP-backed tax plan is a wolf in sheep’s clothing. Republicans are trying to spin the plan as a boon to low- and middle-income Americans, but their plan is clear: pass costly tax cuts that primarily benefit the wealthy and corporations and pay for them by cutting social programs down the road. And then, in 10 years, eliminate the tax cuts for individuals without restoring the spending programs cut to pay for the deficits they created.

For the top 1% this is a win-win. But for most Americans, it is a lose-now, lose-more-later plan.

For more information, see CBPP’s blog post found here: