EVAN HOROWITZ | QUICK STUDY
J. Scott Applewhite/Associated Press
In Massachusetts, as around the country, the families poised to benefit most from the House Republicans’ tax plan are those with the highest incomes.
Households making more than $780,000 will get an average tax cut worth $75,000 in just the first year, according to the left-leaning Institute for Taxation and Economic Policy.
Meanwhile, the average middle class tax cut is closer to $1,100, and struggling families would see cuts amounting to a few hundred dollars.
However you crunch the numbers, the pattern stays the same. Looking ahead to 2027, for instance, ITEP found that the top 1 percent of Massachusetts households would see their after-tax incomes increase by 2.4 percent thanks to these tax cuts. That’s double the 1.2 percent increase enjoyed by middle class families — and it matches other analyses of the nationwide effects.
But the middle class does seem to have one advantage under this bill: Their average gains might be smaller, but they are more certain.
Nearly all Massachusetts taxpayers earning between $45,000 and $80,000 would get a cut, thanks to the expanded child tax credit and the increase in the standard deduction. And that’s simply not true for higher-income households.
By 2027, nearly four of every 10 high-earnings families in the state would actually face higher tax bills under this plan than they would under current law. And that includes both the richest families and the upper-middle-class.
Why the variability? Let’s start with the highest earners because the mechanism is a little different.
At the very top, it’s all about how you earn your money. The House proposal is less a tax cut for the rich than a tax cut for successful business owners. If you have a sizable investment portfolio, run an independent consulting group, or manage a private equity firm, then you are likely to reap big benefits in the form of a reduced corporate tax, a lower tax rate for “pass-through” businesses like small partnerships, and what looks like a continued ability to take the state and local tax deduction (capped for workaday taxpayers).
Now compare these business owners with equally high-earning executives who happen to make their money in the form of paychecks rather than profits. They don’t care as much about business tax changes. What matters for them are the tax rates on ordinary income. And while the House plan would raise the cutoff for the top bracket, the effect on high earners is fairly small. In fact, various technical changes in the bill might drive up their tax liability over time (e.g. the fact that a slower-moving inflation adjustment will effectively lower the bracket thresholds).
Shifting focus to the upper-middle-class families, there is another factor at play. Plans to cap the mortgage interest deduction at $500,000 and the property tax deduction at $10,000 hit Massachusetts families especially hard because our high cost of real estate makes it easier to hit those limits.
The result is that upper-middle-class families in Massachusetts get some of the leanest benefits from this bill. In 2027, the average tax cut for families earning between $100,000 and $500,000 would be approximately $600, less than the middle class is expected to get.
Already, there have been calls for changing key elements in the House bill, and the Senate is expected to release its own — potentially quite different — plan in the coming days. But if the contours of the House tax cuts remain in place, you can expect the following for Massachusetts: a windfall for high-earning business owners, a slighter yet more durable cut in middle class taxes, and wild uncertainty for nearly everyone in between.
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