Rep. Drew Ferguson told a constituent how the Republican tax plan would benefit a “typical” family. We found his statement exaggerates how long the average family of four will enjoy those tax savings.
Ferguson’s office said he had been citing a comment from House Speaker Paul Ryan, whose office told us in a related check that Ryan had been referring to a House Ways and Means Committee analysis. That analysis calculated several scenarios for how the proposal’s changes could affect different taxpayers.
The key elements of the Ways and Means calculation involved tax brackets, the standard deduction and the child tax credit.
The Ways and Means Committee told PolitiFact that they chose a household income of $59,000 because it’s the median household income nationally.
For that income, a family today would get $12,700 from the standard deduction and $16,200 in personal exemptions, leaving $30,100 in taxable income. Of that, $18,650 would be taxed at 10 percent and $11,450 would be taxed at 15 percent, meaning the preliminary tax liability would be $3,582.50. That would be adjusted with $2,000 in child tax credits, producing a final tax liability of $1,582.50.
Under the new tax bill, the family would take a larger $24,000 standard deduction (the proposal eliminates personal exemptions), leaving $35,000 in taxable income. At the 12 percent rate, that would mean $4,200 in preliminary liability. This would be offset by $3,200 in child tax credits and $600 in family credits, leaving a final tax liability of $400. That’s a $1,182.50 tax cut.
So Ferguson has some mathematical detail to back up the figure. But that’s not the end of the story.
The GOP bill eliminates or shrinks a number of widely used itemized deductions, and those factors aren’t taken into account in the figure Ryan cited.
The deductions eliminated or pared back in the bill include the mortgage interest deduction (for future mortgages, it would be capped at half its previous maximum); the state and local tax deduction (only $10,000 in property tax deductions would be allowed); the medical expense deduction; the casualty loss deduction; and the student loan interest deduction.
Exchanging these for a higher standard deduction may benefit many taxpayers, particularly those who choose not to itemize today. About two-thirds of households earning around $59,000 a year do take the standard deduction and a third itemize.
Many itemizing taxpayers are likely to end up worse off if the bill is passed as is, even with the higher standard deduction.
For this type of taxpayer, the loss of even one of those deductions could conceivably wipe out that $1,182 gain for certain types of families.
Also, the benefits of the tax proposal shrink, slowly but surely, over the next decade for the type family Ferguson cites. That’s because a $300 per parent tax credit ends; a child tax credit that effectively replaces personal exemptions is not indexed to inflation as those exemptions are; and an inflation adjustment measure known as chained CPI will be used, which grows more slowly than the yardstick used now.
According to one tax expert’s calculations, the initial tax cut for the family making $59,000 becomes a $500 tax increase by 2024 compared to the status quo. That analysis found that the average income gain for households making between roughly $28,000 and $55,000 would be $150 in 2018 and $20 in 2027.
Ferguson’s statement is based on a plausible and transparent calculation, but he glossed over some context. The calculation doesn’t factor in several itemized deductions that would disappear under the proposal, which could have a significant impact on at least some families around that income level. And the statement is misleading when it says the family will save $1,182 “every year,” since that’s the case in the first year only; after that, the benefit starts to shrink and eventually turns into a tax hike.
We rate the statement Half True.
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