President-elect Trump has promised to “reduce taxes across-the-board, especially for working and middle-income Americans who will receive a massive tax reduction.”
“I want to jumpstart America,” he said earlier this year, promising job creation and economic growth.
Whether his proposed income tax cuts would significantly boost consumer spending and grow the economy is unclear. “The data on whether lower income taxes equate to more robust consumer spending is remarkably inconsistent,” analysts at financial services firm William Blair wrote in a note.
“If your put money into people’s pockets, they’ll spend it,” said Roberton Williams, the Sol Price Fellow at the Urban-Brookings Tax Policy Center. The problem is lower-income consumers, who are most likely to spend any extra that stays in their pockets instead of going to the tax man — are not the biggest beneficiaries of the Trump tax plan. “The bulk of the benefit goes to the rich,” he said.
Trump’s proposed tax plan would reduce the number of tax brackets from seven to three, with the highest rate set at 33% for married filers earning more than $225,000.
Here are the three proposed tax brackets and rates from Trump’s website:
Brackets & Rates for Married-Joint filers:
Less than $75,000: 12%
More than $75,000 but less than $225,000: 25%
More than $225,000: 33%
*Brackets for single filers are ½ of these amounts
The average income for married-couple households with no children last year was roughly $80,000, according to the US Census Bureau. According to the Tax Policy Center, a childless married household earning $39,250 to $96,000 would see its tax rate drop to 12% under Trump’s plan, from the current 15%.
Tax rates would remain at 25% for households earning $105,000 to $172,600.
Unfortunately for lower-income households earning $30,000 to $39,250, the rate would increase from 10% to 12%.
“Looking at median household income of roughly $56,000, such a tax change would equate to roughly $1,600 in annual savings per household,” according to the William Blair note.
The wealthiest 20% of Americans, however, would save more than $16,000, or 6.6% of after-tax income, and the top 1% would see an average tax cut of over $214,000.
Meanwhile, taxes for the poorest fifth of households would drop by an average of $110, just 0.8% percent of their income.