Most of the tax cuts, measured in dollars, go to the highest-income households. But relative to their share of the existing tax burden, more goes to middle-income households. The middle 20% of taxpayers pay 10% of taxes and get 13% of the tax cut. The top 20% pay 67% of taxes and get 60% of the tax cut.
Basically, the overall tax pie is getting smaller. High-income people who received tax cuts will pay a bigger piece of that smaller pie and still come out ahead. Democrats will often describe a tax cut as a distribution program and judge its effects by looking at how much of the overall money goes to each income group. Because rich people pay the most taxes, their tax cuts are also, in dollars, typically the largest from an across-the-board tax cut.
This math drives Democrats’ “tax cuts for billionaires” arguments. Republicans chose to keep all the 2017 tax cuts, including those for the highest-income households, because they viewed the 2017 law as an economic success and also wanted to keep lower rates for businesses that pay taxes through individual tax returns.
But there are other ways to look at the same data. One is to look at the tax cut as a share of people’s previous tax bills. Lower-income people typically don’t pay much federal tax to start with and by this metric therefore will see some significant reductions.
Let’s look at another metric, often preferred by economists. It compares a group’s tax cut to its after-tax income, giving a sense of how financially significant a tax cut is to a particular household. This shows that the biggest winners aren’t the bottom 20% or top 1%, but the group just below the top 1%.
Households with the same income pay different taxes depending on where they live, their deductions and how they get their money. The new law, in some cases, exacerbates those differences. Many people at the bottom of the income scale pay payroll but not income taxes, and so they won’t see much change.