By now, it’s crystal clear that the Trump-GOP tax law (the Tax Cuts and Jobs Act, or TCJA) benefits corporations and the rich more than anyone else. But Republican leaders are pushing the idea that extending the law’s temporary provisions, which expire after 2025, would amount to a “middle-class tax cut.”
And House Minority Leader Nancy PelosiNancy PelosiOvernight Energy & Environment — Presented by the League of Conservation Voters — EPA finalizing rule cutting HFCs Democrats steamroll toward showdown on House floor Panic begins to creep into Democratic talks on Biden agenda MORE (D-Calif.) suggested last week that some of those provisions are not so bad when she tweeted, “Dems want to strengthen the middle class tax cuts & make them permanent.”
A recent analysis from the Institute on Taxation and Economic Policy estimates that the richest fifth of households will receive 71 percent of the benefits of TCJA this year. This is exactly why the law is unpopular. Working people understand that even if they receive some tax cuts, the law is mainly designed to help wealthy people. What about TCJA’s changes that expire after 2025? The Institute’s analysis found that these are nearly as bad — 65 percent of the benefits of extending these provisions in 2026 would go to the richest fifth of households.
So why are lawmakers calling the temporary provisions “middle-class tax cuts”? Perhaps some lawmakers are genuinely confused. Everyone knows that the permanent provisions in TCJA benefit the rich and leave behind everyone else. Some may think that the temporary provisions do the opposite, but that’s not true.
It is true that TCJA’s permanent changes most obviously benefit the rich. For example, the permanent provisions include a massive corporate tax cut, which mostly benefits wealthy families who own most of the stock in American corporations.
And the permanent provisions include some that raise taxes on low- and middle-income families. One is a slower inflation adjustment, which gradually pushes families into higher income tax brackets and reduces the value of other tax breaks. (This would affect all households, but for the richest households the resulting tax hike would be small compared to what they gain from the corporate tax cut.) Another permanent provision that raises taxes on low- and middle-income households is TCJA’s repeal of the health insurance mandate, which results in fewer people receiving tax credits to pay health insurance premiums.
So, it is true that the permanent provisions (changes that will remain in effect after 2025 if Congress does nothing) really do provide massive tax cuts for the rich and tax hikes for working families. But this does not mean that the temporary provisions are “middle-class tax cuts.”
Sure, some of the temporary provisions provide nominal tax cuts for low- and middle-income households — but benefits for high-income households are larger by far. These temporary provisions include changes that exempt more assets from the estate tax, a tax cut for profitable businesses that are mostly owned by the rich, and reductions in personal income tax rates. This is why 65 percent of the benefits from extending the temporary TCJA provisions in 2026 would go to the richest fifth of households.
Lawmakers should also understand that locking in the temporary changes made by the tax law would not undo the damage of the already permanent changes. Compared to what they would have paid, had Congress never passed TCJA, the Institute analysis finds that the average family among the poorest 20 percent of households faces a tax increase in 2026 — even if the temporary changes are extended. This would happen because those permanent provisions that raise their taxes (the slower inflation adjustment and the loss of the tax credits to pay for health insurance) would have a greater impact each year until they outweigh any benefits from other provisions.
If Congress wants true tax reform that benefits working people, it would make more sense to start from scratch and think about what we want our tax system to look like. The Tax Cuts and Jobs Act is not designed to help working families, and neither is an extension of its temporary provisions.
Steve Wamhoff is the director of federal tax policy at the Institute on Taxation and Economic Policy, responsible for setting the organization’s federal research and policy agenda. He previously spent more than two years as the senior tax policy analyst for Sen. Bernie SandersBernie SandersOvernight Energy & Environment — Presented by the League of Conservation Voters — EPA finalizing rule cutting HFCs Manchin fires warning shot on plan to expand Medicare Democrats steamroll toward showdown on House floor MORE (I-Vt.) and as a member of the senator’s budget committee staff. In this capacity, he wrote legislation related to personal income and corporate income taxes, financial transaction taxes, estate taxes and tax avoidance.