The Republican tax reform framework released this week says it will provide “tax relief for middle-class families” among other benefits, but analyses by the conservative-leaning Tax Foundation and liberal-leaning Tax Policy Center dispute that promise.
The two analyses agree that taxpayers in the 90th to 95th income percentile — equivalent to incomes between $133,000 and $189,000, using the latest (2014) IRS figures — will pay more in taxes. These taxpayers, which many would consider upper middle class especially in major metro areas, along with wealthier taxpayers, are among those most likely to be the clients of financial advisors.
The Tax Foundation finds that taxpayers in the top 90th to 99th percentiles for income would experience a modest tax increase while those in the top 1% would see a small tax reduction over the next 10 years. That translates into a modest increase for taxpayers with adjustable gross incomes between $133,000 and $465,000 and a tax cut for those with incomes above $465,000.
The Tax Policy Center reaches a slightly different conclusion: that taxpayers in the 80th to 95th income percentiles would experience a tax increase while those in the top 4% would see their taxes fall.
Higher income taxpayers below the very top are expected to pay more, not less, in federal income taxes because many itemize their tax deductions and those deductions will be limited under the framework. The personal tax exemption, for example, is eliminated in favor of an increase in the standard deduction, child tax credit and non-child dependent credit, but because they itemize, these taxpayers would not benefit from an increase in the standard deduction.