Biden’s tax cuts are seventy percent larger than the tax cuts in any single year of former President Donald Trump’s 2017 Tax Cuts and Jobs Act, as a share of the economy, according to the nonpartisan Tax Policy Center. The relief bill’s tax reductions are also greater than the first year of former President Ronald Reagan’s 1981 tax cuts.
The partisan stimulus is estimated to reduce the total Americans pay in taxes by roughly $500 billion in fiscal year 2021, as reported by the congressional Joint Committee on Taxation, which is equal to about 2.25 percent of the nation’s economy.
But most of the legislation’s tax breaks are for only one year, with almost all revenue effects scattered throughout 2021 and 2022.
“The tax cuts legislated this year will cut taxes more in this single year than either the TJCA or even the Bush tax cuts did in any single year. The difference is of course, that those tax acts led to a decade of lower tax revenue while these provisions will expire shortly,” Nirupama L. Rao, an assistant professor of business economics and public policy at the University of Michigan’s Ross School of Business, said.
Howard Gleckman, a senior fellow at the center, noted in the analysis that the only tax breaks that were larger on an annual basis were those in 1945 and 2010, both proposed by Democratic presidents. Gleckman’s historical comparisons are based on a 2013 paper by a Treasury Department staffer.
By contrast, Trump’s tax cuts had more “staying power,” according to Gleckman, as they were calculated to slash taxes by roughly $1.5 trillion over ten years. Individual tax cuts are set to expire after eight years, in 2025.
And Reagan’s tax reductions would have been larger on an average annual basis, but Congress counteracted his legislative moves with several tax increases in 1982 and 1983.
Biden’s relief plan is estimated to reduce federal taxes in 2021 by an average of $3,000 and boost after-tax incomes by 3.8 percent, a separate analysis by the center reported. Families with children are projected to receive an average tax cut of more than $6,000 under the law.
The president’s tax policy initiative is a largely different approach than that of Trump’s, as Biden’s targets low- and moderate-income households, whereas the former president focused on tax relief for the nation’s highest-income households. Those making $91,000 or less are expected to receive nearly seventy percent of the tax benefits outlined in the pandemic relief measure, which includes the $1,400 direct checks and the slew of tax credit options. By contrast, nearly half of Trump’s cuts went to households in the top five percent of the income distribution—who earned about $308,000 in 2018.
“These tax cuts are aimed at middle-class and poor families with children—exactly the types of pockets you want to put money into during a historic public health and economic calamity. They will spend these dollars and boost demand; these dollars will help keep these families in their homes and feed their children,” Rao said.
Within Biden’s plan, low-income households making $25,000 or less will receive an average tax cut of $2,800 this year, increasing their after-tax income by twenty percent. Under Trump’s tax cuts, the same group saw a $60 decrease on average during the first year, or about 0.4 percent of their after-tax income.
And middle-income households will see a tax reduction by an average of $3,350 or 5.5 percent of their after-tax income in the Democrats’ relief package, while the same class saw their taxes decline by an average of $930, or 1.6 percent of their after-tax income, according to the center.
“This tax cut is a form of stimulus to a weak economy and aid to families hit hard by the pandemic,” Rao said. “It was surprising to me that Congressional Republicans didn’t support the bill as they generally prefer to stimulate a weak economy with tax cuts rather than spending—I would have thought this would be right up their alley.”
And the highest-income 0.1 percent of households will not see any benefit from Biden’s package in terms of tax relief, while the same group enjoyed a tax cut of $193,000, or 2.6 percent of after-tax income from the 2017 tax act.
Biden and Democrats are already looking to make these temporary stimulus provisions permanent, like the expansion of the child tax credit, the earned income tax credit and the Affordable Care Act premiums subsidies. Gleckman said that if the items are cemented under law even after the pandemic, the breaks would approach the size of the 2017 law.
“There is definitely support for making some of these tax provisions permanent, which will entail more lost revenue. Senator Romney, for example, has come out in favor of permanent child benefit,” Rao noted. “Whether that happens will of course hinge on how much support making these provisions permanent can garner in the Senate and the future of the filibuster.”
The president has also recently surfaced his openness to raising taxes on the wealthy, such as those making more than $400,000 per year to pay for some of the Democratic goals during his White House term, like the infrastructure plan.
Rachel Bucchino is a reporter at the National Interest. Her work has appeared in The Washington Post, U.S. News & World Report and The Hill.