Who benefits from tax reform? That question has been a hot topic since the 2017 passage of the Tax Cuts and Jobs Act (TCJA), and the answer is everyone.
However, people’s perceptions differ dramatically from reality. According to a recent WSJ/NBC poll, only 17% said they were paying less in taxes, and the majority thought the TCJA hadn’t or had only marginally impacted them. The release of the first set of tax return data from the tax year 2018 should work to refute this popular belief.
The confusion may be linked to the reduction of tax refunds that some filers experienced. The average tax refund was reduced for some income classes but overall it is a distraction from the purpose of tax reform, which is to reduce tax liability, not increase refunds.
The TCJA benefited the poor and rich alike through lower tax liabilities.
In Pennsylvania, many of the benefits went to businesses, and then spread throughout the state. The TCJA broadened the tax base for Corporate Net Income Tax by an estimated 14%, while reducing the rate from 35 to 21%. These changes to the corporate tax structure contributed to over $880 million in above-estimated revenue for the state. This helped pay down last year’s overspending, resulted in a deposit to the rainy-day fund, which has a history of low balances, and prevented any budget discussion over raising taxes.
In addition to gains in Harrisburg, everyday Pennsylvanian’s reaped the benefits through 4% wage growth, record low unemployment rate of 3.2% in April, and increased bonuses and retirement contributions.
With the newest wave of data regarding the TCJA, it's clearer than ever that economies flourish when tax rates are low and broad, enabling people to keep more of their income and spend it on what they choose. Enacting state-level reform is the next step in keeping this trend going here at home.