Joe Biden didn’t campaign for president as a tax-cutter, but his first big legislative package is turning into a bigger tax cut than the landmark tax bill President Trump signed with great fanfare at the end of 2017.

The $1.9 trillion American Rescue Plan includes at least four provisions that will lower Americans’ 2021 tax bills by an average of $3,360, according to the Tax Policy Center. The 2017 Trump tax cuts only cut the average household’s tax bill by $1,600per year.

There’s also a drastic difference between who gains most from the Biden plan and the Trump tax cuts. In the Biden plan, 67% of the tax savings will go to the lowest 60% of earners—families with household income of about $80,000 and below. People who pay no income tax will still benefit from some of the tax breaks, because they’re “refundable,” meaning people who pay no income tax still get the money as a rebate. The top 20% of earners will get minor tax cuts, or none at all.

The Trump tax cuts, by contrast, heavily favored the wealthy. The lower 60% of earners captured just 17% of those tax cuts, with the top 20% getting 65% of the benefit and the top 1% alone getting 21% of the savings. This chart illustrates the differences:

Source: Tax Policy Center
Source: Tax Policy Center

The Tax Policy Center includes the $1,400 stimulus checks in Biden’s plan as a tax cut, because, technically, they are. Since that’s a per-person benefit, many households will get more than one check. On average, the stimulus checks will boost after-tax income by $2,300 per household. Again, that’s heavily skewed toward lower-income families because the benefit phases out at incomes above $80,000 for individuals and $160,000 for married couples.

It would be fair to Trump to include the stimulus checks sent out last spring and earlier this year as “Trump tax cuts,” since Trump did sign the bills into law. The $1,200 checks that went out last spring saved the typical household about $1,900 on average, while the $600 checks from early January represented about half that, or $950 per household.

If you add those to the yearly gain from the 2017 Trump tax cuts, then the tax savings in 2020 would be $1,600 + $1,900, or $3,500—slightly more than the savings from the Biden bill. The Trump savings plus the $600 infusion earlier this year would add up to $1,600 + $950, or $2,550, about $800 less than the Biden sum. Democrats, of course, would argue Trump only signed those windfalls into law because Democrats controlled the House of Representatives and made sure those benefits were in the relief bills.

It’s important, nonetheless, to focus on the other tax breaks Democrats passed in the Biden bill, with no bipartisan support. Those include an expanded child-tax credit of $300 per month for each child age 5 and younger and $250 per month for kids 6 to 17. For the first time, parents who don’t pay federal income tax will be able to claim that credit as a cash rebate, on a monthly basis. There’s also an expanded earned-income tax credit and other tax breaks targeted at lower-income families.

Taken together, these changes represent the biggest enlargement of the social-safety net since the Great Society programs of the 1960s. They provide some guaranteed income to families with kids and could reduce the poverty rate by one-third.

The catch is that these programs are temporary, through 2022. Democrats obviously hope they’re popular enough to generate strong support for making them permanent, which is quite possible. In the twisty logic of American politics, any politician opposed to that will suddenly be guilty of wanting to raise taxes on working- and middle-class Americans.

Trump and his fellow Republicans made the same assumption with their 2017 tax cuts for individuals, which expire in 2025. There will be pressure to make those tax cuts permanent too, when the time comes. But it will be a tougher sell to justify the windfall for 1 percenters, who didn’t really need it in the first place. Democrats seem to be sniffing that out.

Source: https://finance.yahoo.com/news/biden-is-cutting-taxes-more-than-trump-did-161045318.html

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