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Who Wins, Who Loses in House Tax Cut Bill: Report

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The House tax cut bill introduced last week would reduce taxes for most Americans, but at least 7% would pay more in 2018, a percentage that grows to 25% in 2027, according an analysis by the nonpartisan Tax Policy Center.

(Related: What GOP Tax Outline Means for Advisors and Clients)

The average tax bill across all income groups would decline 1.6% in 2018, saving taxpayers about $1,200 in 2018, but by 2027 the tax cut would be worth about $700, or about 0.7% of after-tax income. About 76% of taxpayers would see their taxes cut in 2018, but by 2027 that percentage declines to 59%.

The biggest beneficiaries of the bill, known as the Tax Cuts and Jobs Act (H.R.1), would be higher-income taxpayers. The top 1%, with incomes over $730,000, would collect nearly 21% of the total tax cut in 2017 and 47% of the cut in 2027, according to the Tax Policy Center.

Looked at another way, the  top 1% would pay an average $37,000 less in taxes in 2018 (equivalent to an average 2.5% increase in after-tax income) and almost $53,000 less in taxes in 2027, equivalent to a 2.2% jump in after-tax income.

In contrast, the middle quintile of taxpayers by income, with incomes averaging $86,000, would receive about 14% of the tax cuts and pay $840 less in 2018, but in 2027 their share would decline to less than 9% of the tax cut, saving just $320.

Tax savings in the House bill decline over time because certain tax cuts are eliminated or phased out, such as the family tax credit and immediate expensing for business investment, and the bill uses a slower growing inflation adjustment, known as the chained Consumer Price Index, rather than the traditional CPI.

The Tax Policy Center cautions that its analysis overestimates the number of taxpayers who would receive a federal tax cut and underestimates the number who would experience a tax increase due to certain minor provisions that are excluded from its analysis.

The analysis also notes that the tax bill will result in a smaller number of taxpayers who itemize deductions — it repeals many deductions, including for state and local income and sales taxes, and almost doubles the standard deduction — which would increase taxes for many higher income taxpayers.

For the 7% of taxpayers who would pay more in taxes in 2018, the average tax increase would be about $2,100. By 2027, about 25% would be paying more in taxes, owing an additional $2,000.

The Senate is expected to introduce its tax cut bill Thursday morning, which, according to reports, will be very different from the House bill. The Senate bill, for example, is expected to exclude all state and local tax deductions while the House bill just excludes the deduction for state and local income and sales taxes and allows a maximum deduction of $10,000 for state and local property taxes.

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