4 Myths About the Tax Cuts and Jobs Act That Critics Want You to Believe
Washington, April 15, 2019
Last month, the House Ways and Means Committee, where I serve, held a hearing on the Tax Cuts and Jobs Act of 2017. There have been myths, misconceptions, and misinformation surrounding this legislation and its impact on the economy, individuals, and families. With Tax Day this week, let’s take a moment to look at the facts and set the record straight on four common misconceptions.
Myth 1: The new tax code benefits big business, not individuals and families.
Truth: 75% of the law’s tax relief went to individuals, families, and small businesses. The Heritage Foundation recently reported that, according to their calculations, “over the next decade, the typical American household will reap an additional $26,000 in take-home pay thanks to the cuts and the economic growth they fuel.”
In addition to simplifying and streamlining the tax code for American families, the Tax Cuts and Jobs Act also lowered the corporate tax rate so U.S. companies can compete globally and keep jobs here. Previously, America had the highest corporate tax rate in the industrialized world, which put our companies, and our friends and neighbors whom they employ, at a disadvantage. The new rate helps level the playing field when it comes to foreign competition and thus further boosts our economy.
Myth 2: The wealthy benefit most from the new tax code.
Truth: The largest percentage of tax cuts go to Americans making less than a $50,000 salary. Using IRS data, the Heritage Foundation found that “average households in every congressional district will get a tax cut” in 2018, while “lower-income communities get the largest percentage decreases in their tax bills.” By simplifying the tax filing process, reducing federal income tax rates, increasing the standard deduction, doubling the child tax credit, and repealing the personal and dependent exemptions, the law is providing real relief for average American families and individuals. Making these improvements permanent should be a top bipartisan priority for Democrats and Republicans.
Providing relief from over-taxation for American job creators has also helped unleash tremendous economic growth that impacts American workers across the country: CNBC reported that in the first week of April, the U.S. jobless rate dropped to the lowest it has been in almost 50 years, while late last year BBC reported that U.S. wage growth was at a 9 year high.
Myth 3: Americans are losing money, since their tax refunds are shrinking.
Truth: Most Americans are paying less in taxes, and also overpaying the IRS to a lesser extent — which results in smaller refunds but fatter paychecks. Business Insider reports that, “Taxes for middle-income Americans fell on average in 2018, according to multiple analyses.” Many folks received this tax cut over time, via a lower withholding on their paychecks each month, rather than on their refund during filing season. In addition, the IRS updated the recommended federal tax withholding for your paycheck to ensure more people pay the correct amount of taxes in each paycheck, which means you won’t owe the IRS at the end of the year or get a massive refund. While it might not feel the same to get a smaller refund, it means you’re not overpaying your taxes (which essentially gives the government an interest-free loan).
Myth 4: Americans are feeling worse about their economic situation, not better.
Truth: Most Americans believe they are “better off” than just a year ago. This is the first time since 2007 that the majority of Americans are feeling better off; 69 percent of Americans expect their personal finances to be better next year according to a Gallup poll.
Here’s the bottom-line: the U.S. tax code is still far from perfect, but the action taken by Republicans to enact the most sweeping overhaul of our tax code in 30 years is providing real relief for American families. Democrats’ dramatic cries of “Armageddon” and the “end of the world” simply aren’t supported by the facts.
It’s time to tone down the rhetoric, face the facts, and work together to make these important reforms permanent so that they can keep working for American families. Let’s continue to improve our tax system so that it rewards hard work, fosters economic growth, and allows Americans to keep more of their hard-earned money in their bank accounts – where it belongs.