Tax Cuts and Jobs Act: Myth vs. Fact
MYTH: The Tax Cuts and Jobs Act is the same as the tax plan signed into law in Kansas in 2012.
FACT: The Kansas tax “experiment” cut rates for small businesses to 0%. Our plan reduces the federal rate to 25%, which will allow American small businesses to compete at a level similar to other nations around the world without irresponsibly eliminating the taxes altogether.
In Kansas, there were no guardrails put in place to prevent tax avoidance by individuals who could classify their income as business income by filing with the state as a business. However, our bill does. It presumes that 70% of income is attributable to labor and would be taxed at the individual income-tax rate. And those providing a professional service, like lawyers, financial planners, and college athletics coaches, are not eligible to qualify for the lower 25% rate.
Finally, in Kansas, income tax rates were cut across the board with no removal of deductions or exemptions – the loopholes that let wealthier filers reduce their taxable income. In order to simplify the tax code, our bill eliminates those loopholes for the rich, but retains middle-class tax incentives such as deductions for home mortgage interest and charitable contributions.
MYTH: Eliminating loopholes like the state and local tax deduction hurts middle class families because they are the ones taking advantage of those provisions.
FACT: About 105 million Americans, or about 70% of tax filers, do not itemize their deductions when doing their taxes. That means they do not take deductions for their state and local tax taxes, their mortgage interest, their donations to charity, etc. Instead, those 7 in 10 people take the standard deduction, which doubles in value in our bill.
The 3 in 10 people who do itemize their deductions tend to be wealthier individuals. In fact, according to The Economist, 90% of the benefits of the state and local tax deduction go to those making more than $100,000 per year. According to the Census Bureau, the median household income – the widely-accepted definition of the middle class – in Wyandotte County is $40,113, in Miami County is $60,996, and in Johnson County is $76,113. In other words, the middle class is by and large not benefitting from the state and local tax deduction.
If a middle class family making the median income in Johnson County is currently itemizing their taxes and taking advantage of the state and local tax deduction, they are deducting about $2,647 from their taxes. A middle class family in Miami County currently itemizing is deducting $1,952 in state and local taxes. In Wyandotte County, it’s $991. Each of these small deductions are more than made up for in our bill by doubling the value of the standard deduction, making the first $24,000 of their income tax-free. Or if they do want to itemize, they can still claim a deduction for up to $10,000 in state and local property taxes under the House bill.
MYTH: The Tax Cuts and Jobs Acts takes away Americans' ability to set aside money in tax-deferred retirement accounts.
FACT: The bill preserves the current tax structure for employer-provided 401(k) retirement plans and Individual Retirement Accounts (IRAs), helping you plan for and secure your retirement.
MYTH: The Tax Cuts and Jobs Act raises taxes on the poor and the middle class to give a huge tax break to the wealthy.
FACT: A typical middle class family of four making the median household income of $59,000 receives a tax cut of nearly $1,200 under the House-passed Tax Cuts and Jobs Act. We significantly lower the tax burden for middle class and low-income Americans by doubling the size of the standard deduction – making the first $24,000 in a family’s income and the first $12,000 of an individual’s income tax-free. The bill also preserves the existing Earned Income Tax Credit and Child & Dependent Care Tax Credit, creates a new Family Credit, and increases the value of the Child Tax Credit. Finally, it cuts the tax rate for all income earners who make fewer than $1 million while preserving the top rate of 39.6 for the wealthy.
According to chart below from the Joint Committee on Taxation (JCT), the non-partisan organization that scores congressional tax legislation, the income group that sees the most tax relief under our plan is those making between $20,000 and $30,000 per year.
MYTH: Repealing the estate tax is a give-away to rich families, does nothing to actually benefit our economy or help small businesses or family farms, and will explode our deficits.
FACT: A study by the bipartisan Joint Economic Committee (JEC) indicates "the estate tax has reduced the amount of capital stock in the U.S. economy by roughly $1.1 trillion since its introduction as a permanent tax in 1916” and that the tax "is an overwhelming cause of the dissolution of family businesses. The estate tax is a significant hindrance to entrepreneurial activity because many family businesses lack sufficient liquid assets to pay estate tax liabilities."
Conversely, the JEC chart below shows that the death tax raises less than one half of one percent of all federal tax revenues. The JEC study points out that “since its inception nearly 100 years ago, the estate tax has raised just under $1.3 trillion in total revenue.”
MYTH: The Tax Cuts and Jobs Act was negotiated in secret & passed in the dead of night.
FACT: Since January 2011, the House has held nearly 50 hearings and listening sessions, debated dozens of idea, policy proposals on reforming our tax code. This fall, the House Ways and Means Committee worked through regular order, considering many amendments from both sides of the aisle and passed the bill – you can watch the hearings on C-SPAN here.