Happy anniversary! Dec. 22 marks two years since Congress and President Donald Trump passed the Tax Cuts and Jobs Act (TCJA), a sweeping tax reform bill that largely benefited wealthy individuals and corporations by expanding the U.S. budget deficit by $1.9 trillion between 2018 and 2028. Though many have survived the last two years without feeling the full repercussions of these deeply unpopular tax cuts, trouble is on the horizon if we do not act to protect working families from harmful reductions in public spending.
Most Michiganders will not benefit from the Tax Cuts and Jobs Act. The TCJA was designed to benefit corporate interests and the wealthy. The legislation cut out most working families by making tax reductions for individuals temporary and largely insignificant. The cuts are funded through increases in the deficit, which will put pressure on future members of Congress to cut funding for essential services in the future.
While changes to the corporate tax code were made permanent, many of the changes impacting individuals were temporary, meaning that the tax cuts for individuals will disappear over time. By 2027, more Michigan residents will pay higher taxes. In fact, taxes are slated to rise for a majority of taxpayers with low and middle incomes while most wealthy taxpayers will not experience a tax increase.
A recent analysis by the Institute of Taxation and Economic Policy demonstrates the large disparities in tax cuts from the TCJA. Their analysis concludes that in 2020, Michiganders in the bottom 20% and middle 20% of incomes will receive average tax cuts of $50 and $750 respectively. Meanwhile, the top 1% of earners will receive an average tax cut of about $52,000.
The Tax Cuts and Jobs Act will make it difficult for the federal government to respond to the next recession. With a recession looming, it is important that the federal government remains poised to stimulate the economy through spending. Because the TCJA expanded the U.S. budget deficit, lawmakers will be under more pressure to right-size the budget. Ultimately, if the federal government fails to pass a stimulus package, the next recession could be deeper and last longer than it would have otherwise.
Our tax system also works as a buffer to economic downturns. The TCJA weakened certain provisions of the federal tax code that would act to stabilize the economy during the next recession. Without these automatic stabilizers, the economy is more likely to overheat, and worse, more likely to plummet into a deep recession.
We can do more to protect working families. The Working Families Tax Relief Act would expand the federal Earned Income Tax Credit and Child Tax Credit. These tax credits have been successful in reducing poverty and strengthening communities. Passage of the Working Families Tax Relief Act would focus our tax code on lifting up working families instead of providing for tax breaks for those at the top.
Federal policymakers could boost over 1.4 million working families in Michigan alone through the Act, which is sponsored by Congressman Dan Kildee of Michigan. Please let your members of Congress know that you hope they’ll support working families by co-sponsoring the Working Families Tax Relief Act.