The New Tax Bill -- Winners and Losers 06-30-2018auerbach/The New Tax Bill -- Winners and... ·...

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TheNewTaxBill–WinnersandLosers

AlanJ.Auerbach

UniversityofCalifornia,Berkeley

LaurenceJ.Kotlikoff

BostonUniversity

DarrylKoehler

TheFiscalAnalysisCenter

June29,2018WethankTheGoodmanInstitute,TheSloanFoundation,TheBurchCenterforTaxPolicyandPublicFinance,TheFiscalAnalysisCenter,BostonUniversity,andEconomicSecurityPlanning,Inc.forresearchsupport.WethankJaneGravelleforveryhelpfulcomments.Allopinionsarestrictlythoseoftheauthors.

Abstract

TheTaxCutandJobsActof2017(TCJA)representsthemostsignificantchangeinU.S.taxationsince1986.Thebill’sfairnessandwelfareimpactshavebeenstudiedandwidelydebated.Butprior distributional analyses suffer from three shortcomings. First, they examine changes incurrentgross,notremaininglifetimenettaxes.Second,theylumptogethertheyoungandtheold,leadingtomisleadingcomparisons.Third,theyignorethereform’spotentialimpactonthedistributionofpre-taxincome.ThispaperrespondstotheselimitationsinidentifyingwinnersandlosersundertheTCJA.ItusesThe Fiscal Analyzer (TFA) – a program developed to understand fiscal progressivity, workdisincentives and spending inequality. TFA is a detailed life-cycle consumption-smoothingprogramthatincorporatesborrowingconstraints,lifespanuncertaintyandallmajorfederalandstate tax and transfer programs. TFA calculates for different resource groupswithin specificcohortsremaininglifetimenettaxesandremaininglifetimenetspending.Itscalculationscan,inturn,beusedtoa)formresource-andcohort-specificaverageandmarginalremaininglifetimenettaxrates,b)measureabsolutechangesinremaininglifetimespendingforparticularresourcegroupswithin particular cohorts and c) assess changes, within-cohort, in remaining lifetime-spendinginequality.Thepaper’smeasurementsresultfromrunningtheFederalReserve’s2016SurveyofConsumerFinancesthroughTFAbasedonbotholdtaxlawaswellastheTCJA.Insodoing,weconsidertwoalternativeassumptionsaboutthenewtaxlaw’simpactonrealwages.Thefirstiszeroimpact,whichletsusconsidertheimpactofthetaxreformonitsown.Thesecondisa5.5percentincreaseinrealwages–afiguresuggestedbyanalysisinBenzell,KotlikoffandLagarda(2017b).Wefind,forallresource(humanplusnon-humanwealth)groupswithinallcohorts,verymodestreductionsinaverageremaininglifetimenettaxrates(remaininglifetimenettaxesofaresourcequintiledividedbyremaininglifetimeresourcesofthatresourcequintile)regardlessofresourcelevel.Wealsofindverylittlewithin-cohortchangeinfiscalprogressivitywhetheronemeasuresfiscalprogressivityby the shareof totalnet taxespaidby the richest1percent, the shareofspendingdonebythetop1percent,thepercentageincreaseinaveragespendingbythetop1percentcomparedtootherresourcegroups,orthedegreetowhichaverageremaininglifetimenettaxratesrisewithresources.Thissaid,theabsoluteaveragenettaxreductionsthattherichwillenjoyaredramaticallylargerthanthoseprovidedtothepoor.Buttaxcuts,evenprogressiveones,canproducesucharesultsincetherichpaydramaticallymoretaxesperhouseholdthandothepoor.TCJAimpactsthedistributionofresources,albeitmodestly,amongsimilarlyplacedhouseholds– households within the same cohort and resource quintile. Consider, for example, middlequintile, 40-49 year olds. Leaving aside potential wage increases, TCJA produces less thana1.0percentriseinlifetimespendingfor9.9percentofhouseholdsinthecohortandalargerthan3.0percentriseinlifetimespendingfor4.3percent.

1. IntroductionTheTaxCutandJobsActof2017(TCJA)representsthemostsignificantchangeinU.S.taxationsince1986.Thebill’sfairnesshasbeenstudiedanddebated,withresultsgenerallysuggestingthereformisregressive.AnexampleisTaxPolicyCenter(2017),whichreports“higherincomehouseholdsreceivelargeraveragetaxcutsasapercentageofafter-taxincome,withthelargestcuts as a share of income going to taxpayers in the 95th to 99th percentiles of the incomedistribution.” The Congressional Budget Office (2017) and the Joint Committee on Taxation(2017a)reachsimilarconclusions.Butthemethodologyunderlyingthesestudiessuffersfromthreemajorshortcomings.First, itexaminescurrent,notremaininglifetimetaxes,foreachhousehold.Second,itlumpstogethertheyoungandtheold,mixinghouseholds inverydifferentpositions relative to their lifetimeincomes.Third,itignoresthereform’spotentialimpactonwagesand,viathischannel,welfareandprogressivity.This paper rectifies these problems in assessing TCJA. It measures the reform’s impact onremaininglifetimenettaxesofhouseholdswithdifferentlevelsofremaininglifetimeresources.Itperformsthisanalysisseparatelyfordifferentagecohorts.Itconsidersbothzeropercentand5.5percentreal-wagechanges,thelatterfiguresuggestedbysimulationsoftheGlobalGaidarModel(seeBenzell,KotlikoffandLagarda,2017aand2017b).1Anditshows,foreachcohort,howtheTCJAaltersinequalityinremaininghouseholdlifetimespending.Thepaper’smeasurementsresultfromrunningtheFederalReserve’s2016SurveyofConsumerFinancesthroughTheFiscalAnalyzer(TFA)developedinAuerbach,KotlikoffandKoehler(2015).TFA is a detailed life-cycle consumption-smoothing program that incorporates borrowingconstraints,lifespanuncertaintyaswellasallmajorfederalandstatetaxandtransferprograms,includingcorporateincometaxes.Consideringazerochangeinwagesletsusisolatetheimpactofthetaxreformfromitspossibledynamic economic feedback effects. It also accommodates other views, (e.g., Gravelle and 1 Benzell, Kotlikoff and Lagarda’s (2017b) simulation of theUnited Framework produces very similar simulationresultsasthosefortheTCJAsinceitscorporatetaxchangesareessentiallyidentical.Theassumptionofzerowageimpact treats theU.S. economy as effectively closedwhen it comes to changes in effectivemarginal corporateincometaxrates.Thisaccordswith theassessmentofGravelleandSmetters (2001).TheBenzell,et.al. (2017b)modelsuggests,ontheotherhand,thattheU.S.isbettermodeledasasmallopeneconomysincelargechangesintheU.S.effectivemarginalcorporatetaxrateintheirmodelhavesignificantU.S.wageimpacts,butverylittleeffectontheworldinterestrate.TheCongressionalBudgetOfficetakesamiddlegroundposition,assumingthatthreequartersoftheincidenceoftheU.S.corporateincometaxfallsonU.S.ownersofcapitalwiththeremainingonequarterfallingonU.S.workers.RatherthanfollowtheCBOapproachofassumingaparticularincidenceoutcome,wepresentresultsthatassumethatwagesbeareithernoneofthecorporatetaxincidenceorcloseto100percent.WehandlethelattercasebyrunningtheTFAwitha5.5percentchangeinrealwages,butnochangeintherateofreturn(theworldinterestrate)receivedbyhouseholds.

Smetters,2001,thePennWhartonBudgetModel,2017,andtheJointCommitteeonTaxation,2017b)ofTCJA’spotentialdynamiceffects,someofwhichsuggestamuchsmallerimpactthanBenzell,et.al.(2017a,2017b).Wefindverymodestandgenerallysimilarreductionsforallcohortsinaverageremaininglifetimenettaxrates(remaininglifetimenettaxesdividedbyremaininglifetimeresources)regardlessofresourcelevel(non-humanwealthplusthepresentvalueoffuturewagesandsalaries).Regardingthemagnitudeofchanges,consider,forexample,themiddle-resourcequintile.Assumingazeropercentwageincrease,thereductionsare15.8percentto14.2percentfor40-49yearolds,26.4percentto24.5percentfor20yearolds,and-58.0percentto-59.2percentfor60yearolds.2Witha5.5percentwageincrease,therespectivechangesare15.8percentto15.3percentfor40yearolds,26.4percentto25.2percentfor20yearoldsand-58.0percentto-57.9percentfor60yearolds.TCJAhasvery little impactonfiscalprogressivitybasedonaverageremaining lifetimenettaxrates.Inthecaseof40-yearolds,assumingnochangeinbefore-taxwages,theaverageremaininglifetimenettaxrateforthetop1percentfallsfrom34.1percentto33.1percent.Forthebottom20percent,theaveragenettaxratefallsfrom-41.6percentto-42.6percent.Witha5.5percentwageincrease,theaveragenettaxrateofthetop1percentfallsverylittle--from34.1percentto33.7percent.Forthepoorest20percent,theaveragenetraterisesfrom-41.6percentto-37.9 percent. Clearly, the reform’s feedback effects matter for fiscal progressivity as wageincreasespushhouseholdsintohighermarginalnettaxbrackets,particularlyatthelowerendoftheresourcedistribution.Still,thesearerelativelysmallchanges.Analternativeindicatoroffiscalprogressivityistheshareofremaininglifetimegrosstaxespaidbytherichest1percent.Thisindicatoralsoshowsverylittlechangeduetothereform.Inthecaseof40-49yearolds,theshareis16.6percentundertheoldtaxsystem.Underthereform,it’s16.9percentwithnowageincreaseand16.7percentifwagesriseby5.5percent.Yes,thetop1percentexperiencesasmalldeclineintheiraveragenettaxrate.Butthecorrespondingdeclineissomewhatlargerforotherpercentilegroups,whichexplainswhythetaxshareofthetop1percentactuallyrisesslightly.Hence,bythismeasure,thetaxreformisslightlyprogressive.Thetaxshareofthemiddlequintileof40-49yearoldsis11.8percentunderoldlaw,11.7percentunder the TCJAassumingnowage increases, and12.0percent assuming a 5.5percentwageincrease. For the bottomquintile of 40-49 year olds, the three respective tax shares are 2.6percent,2.6percentand2.7percent.TCJA-inducedchangesinremaininglifetimespendinginequalityisarguablythebestmeasureofthereform’sfiscalprogressivity.Thereformproducesverylittlechangeinthespendingsharesofdifferentpercentilegroupsregardlessofthecohort’sage.Take40-49yearolds,onceagain.

2Note that average remaining lifetimenet tax rates declinewith age since taxes are front loaded and transferpaymentsarebackloadedoverthelifecycle.

Thepre-reformspendingshareofthetop1percentis12.9percent.Itremainsconstantat12.9percentunderthereformwithfixedwagesanddecreasesto12.7percentwhenwagesrise.Thesesharesare,bytheway,farlowerthanthetop1percent’s30.3percentshareofnetwealth.Thedifferencereflects,ofcourse,thefactthathumanwealthandremaininglifetimenettaxesarefarmoreprogressivelydistributedthanisnetwealth.Forthemiddlequintileof40-49yearolds,thespendingshareis14.1percentunderboththeoldlawandnewlawassumingwagesremainfixed.The5.5percentriseinwagesraisesthisfigureslightly--to14.2percent.Thesefiguresmaybecomparedwithanetwealthshareof5.6percent.Asforthepoorestquintileinthe40-49yearoldcohort,theirspendingshareis6.5percentpre-reform.Itdropsslightlyto6.4percentunderthereform,assumingnowageincrease.Witha5.5percentwageincrease,it’sagainslightlysmaller–6.4percent.Hereagain,theTCJAhasonlyasmallimpactoninequality.Thecorrespondingnetwealthshareforthepoorest20percentof40yearoldsis1.0percent.YetanotherwaytomeasureofTCJA’sprogressivityTCJA is toconsider theshareof thetotaladditionalspending(ignoringanyassociatedwageincrease)affordedbythereformthatgoestothetop1percent.Inthecaseof40-49yearolds,thisshareis9.7percent,whichislessthanthetop1percent’sinitial12.9percentshareoftotalcohortspendingunderoldlaw.Theshareofadditionalspendinggoingtothelowestquintileis2.3percent.Thistooislessthantheiroverallinitial spending share, which is 6.5 percent. Consequently, for 40-49 year olds, neither thesuperrichnortheverypoorbenefitdisproportionatelyfromthereform.Thismeasureisdifferentfordifferentcohorts.Forexample,thetop1percentof20-29yearoldsgarner7.0percentoftheir cohort’s total spending increase.Among70-79yearolds, the top1percentgarner28.5percentofthetotalcohort’sspendinggain.Buttheshareofthetotal,within-cohortincreaseinspending enjoyed by the top 1 percent is not enough to materially alter the share of totalspendingofthetop1percentinanycohort.What about changes in average spending levels among 40-49 year olds? Ignoring any wageincreases,thetop1percentexperience,onaverage,a$320,624riseinspending.Thoseinthemiddlequintileaveragea$23,159spendingincrease.Forthoseinthebottomquintile,averagespendingrisesby$3,960.Consequently,thegaintothesuperrichis81timesthatofthepoor.Fromthisperspective,whichisoneoftentakeninpolicydiscussions,thereformappearsgrosslyunfair. But by other standard measures of progressivity and inequality, which focus not onchangesinabsolutenettaxpaymentsorabsolutespendinglevelsbutonaveragetaxratesaswell as tax and spending shares, the TCJA appears to be roughly distributionally neutral. Ofcourse, if it causeswages to rise, these reformswill also improve theeconomyandworkers’welfare.TheTCJA’sgreatest impactonthedistributionofresources,albeitmodest, isamongsimilarlyplacedhouseholds – householdswithin the same cohort and resourcequintile. Consider, forexample,middlequintile,40-49yearolds.Leavingasidepotentialwageincreases,TCJAproduces

lessthana1.0percentriseinlifetimespendingfor9.9percentofhouseholdsinthecohortandalargerthan3.0percentriseinlifetimespendingfor4.3percent.ThepaperproceedsinSection2bybrieflydescribingtheTCJA.Section3presentsourmethodofcalculatingremaininglifetimenettaxes,remaininglifetimenettaxrates,andremaininglifetimespending. Section 4 describes the 2016 Survey of Consumer Finances (SCF) data, ourbenchmarkingoftheSCFtonationalaggregates,andthelimitationsoftheSCFwhenitcomestoincorporating pass-through business tax provisions. Section 5 presents results and section 6concludes.2. TheTaxCutsandJobsActof2017(TCJA)TheTCJAwas theculminationofayearandahalfof fiscal reformdebateamongHouseandSenate Republicans, beginning with The Better Way Plan released in June 2016. That planenvisioned replacing the corporate income taxwith a 20 percent destination-based businesscash-flow tax, reducing taxation of pass-through businesses, streamlining personal-incometaxation by eliminating the Alternative Minimum Tax (AMT), unifying the tax treatment ofpersonalasset income(taxinghalfofpersonalasset income),eliminatingexemptionsandthedeductibilityofstateincomeandpropertytaxes,raisingthestandarddeduction,raisingthechild-taxcredit,reducingthenumberofincome-taxbracketsfromseventothree(withthetopratelowered from 39.6 percent to 33.0 percent), using a chain CPI to index tax brackets, andeliminatingtheestatetax.TheUnifiedFrameworkwasthereform’ssecondincarnation,differingfromTheBetterWayPlanprimarilyinitscorporatetaxreform.Specifically,iteliminatedbordertaxadjustment,eliminatedexpensingoflong-livedinvestments,andpermittednetinterestdeductionsuptoalimit.TheTCJAretainedmostofTheUnifiedFramework’sbusinessprovisions.Butitseta21percentcorporate tax rate and introduced a variety of international tax provisions aimed at limitingcorporate taxavoidance. It alsoplaced restrictionson thenatureandextentofpass-throughincomethatcanreceivefavorabletaxtreatment.Onthepersonalside,theTCJAretains7taxbrackets,withatoprateof37percent.Themortgageinterestdeductiononoldmortgagesupto$1millionwasgrandfathered.Fornewmortgages,thelimitwasreducedto$750,000.Stateandlocaltaxandpropertytaxdeductionswererestored,butonlyuptoacombinedtotalof$10,000.Thetopmarginalratewassetat37percent.TheindividualAMTwasretainedinmodifiedform.Therewerealsosomeminorchangestocapitalgainstaxbrackets.Finally, theestatetaxwasretained, but the exemption level was doubled. The Fiscal Analyzer incorporates all theaforementionedelementsoftheTCJAand,asdescribedinAuerbachet.al.(2016)andAuerbachet.al.(2017),allelementsofpriortaxlaw.

Many of TCJA’s tax provisions become less favorable over the course of the 10-year budgetperiod.Inaddition,manyofitsindividualtaxcutprovisionsaresettoexpirebytheendofthedecade.Thesefeaturesappeartohavebeenincludedsimplytomeetarbitrarybudgettargetswithinthebudgetperiodandtolimitthegrowthinprojecteddeficitsbeyondthebudgetperiod.MeetingthebudgettargetsandlimitingfutureprojecteddeficitswereneededtopermitpassageofthebillwithasimplemajorityintheSenate.However,therewasnocoherentpolicyreasonofferedforsuchtemporaryprovisions,norareweawareofany.Consequently,inthisanalysisweassumeTCJA’sprovisionsarepermanent.ThisassumptionisimportanttokeepinmindwheninterpretingourresultsandcomparingthemwiththoseofotherstudiesthatadherestrictlytotheletterofTCJA’slaw.

3. Methodology

TomeasuretheeffectsoftheTCJAonrevenue,inequality,progressivity,andworkincentives,weranallhouseholdssampled in theFederalReserve’s2016SurveyofConsumerFinances (SCF)throughTheFiscalAnalyzer(TFA).TFAisadetailedlife-cycleconsumption-smoothingprogramthatincorporatesbothborrowingconstraintsandlifespanuncertaintyaswellasallmajorfederalandstatetaxandtransferprograms.3Inthecourseofdoingitsconsumptionsmoothing,TFAdetermineseachhousehold’sexpectedpresent valueof remaining lifetime spending,where the termexpected references averagingover different longevity outcomes and spending encompasses all expenditures, includingterminalbequestsnetofestatetaxes.Theimpetusforfocusingonremaininglifetimes,ratherthanjustthecurrentyear,comesfromstandardlifecycleeconomictheory.Thelifetimebudgetconstraintfacingeachhouseholdisgivenby

(1) S=R–T,whereSreferencesthepresentexpectedvalueofahousehold’sremaininglifetimespending,Rstandsforremaininglifetimeresources(thepresentexpectedvalueofremaininglifetimelaborearningsplusitscurrentnetworth)andTstandsforthepresentexpectedvalueofremaininglifetimetaxesnetoftransferpaymentsreceived.Theaveragenettaxrate,t,isdefinedby

(2) t= 𝑇/𝑅.Thus, if theexpectedpresent valueof ahousehold’s spending is, for example, 65percentofremaininglifetimeresources,itsaveragenettaxrate,t,equals35percent.Averageremaininglifetimenettaxratestellusnotonlythenetshareoftheirresourcesthathouseholdssurrender 3See Auerbach, Kotlikoff, and Koehler (2016).

tothegovernment.Theyalsotellusabouttheprogressivityofthefiscalsystem.Ifaveragenettaxratesrisewiththelevelofresources,thefiscalsystemisprogressive.Iftheyfall,thesystemisregressive.Iftheyareindependentofthelevelofresources,thesystemisproportional.This paper, like our prior studies using TFA (Auerbach et. al., 2016, Auerbach et. al., 2017),calculates inequality and the progressivity of the fiscal system on a cohort-specific basis.Specifically,weconsiderinequalitybylookingwithin10-yearagecohortsattheshareoftotalremaining lifetime spending attributable to households falling within different within-cohortpercentiles of remaining lifetime resources, R. To measure within-cohort progressivity, weconsiderhowaverageremaininglifetimenettaxratesvarywithresources.Weusecohort-specificanalysistoconsiderinequalityandprogressivitybecausefailingtodosoamounts to comparing apples with oranges. Ranked by remaining lifetime spending, oldercohortswould lookpoorer than younger cohorts simplybecause theyhad shorter remaininglifespans.AndremaininglifetimenettaxratesofoldercohortswouldappearlowerthanthoseofyoungercohortssimplybecausetheelderlywouldreceivenocreditfornettaxespaidinthepastandappeartobesubsidizedbecausetheyarecollectingorwillstarttocollectMedicare,Medicaid,andSocialSecuritybenefitssoonerthanyoungercohorts.Evenifwewereconsideringjustone-year’sincomeandtaxesforeachcohort,comparingindividualsfromdifferentcohortswouldleadtomisleadingresults.Consider,forexample,thecaseinwhichallhouseholdsearnthe same amount over their life cycles regardless of their year of birth. Hence, there is noinequalityinlifetimewelfareeitheracrossorwithingenerations.Butifsuchaneconomyfeaturedasocialsecuritysystemthattaxedtheworking(andearning)youngtopaybenefitstotheretired(andnon-earning)old,policywouldlookhighlyprogressive(thosewithhighincomespaytaxes,thosewithlowincomereceivebenefits),contrarytoreality.4. The2016SCF

The Federal Reserve’s Survey of Consumer Finances is primarily a cross-section survey thatcollects data from some 6,500 American households. The survey includes data on assets,liabilities, income,demographicsandahostofothersocio-economicvariables.Unfortunately,thesurveydoesn’tlinktopastearningsrecords.Consequently,toestimatefutureSocialSecuritybenefitsaswellasfuturelaborearnings,weused,asdescribedinAuerbach,KotlikoffandKohler(2016),datafromthepastCurrentPopulationSurveystobackcastandforecastlaborincome.IntheSCFdata,household-weightedtotalsofvariouseconomicandfiscalaggregatesmaynothavedirectcounterpartsintheNationalIncomeandProduceAccount(NIPA)orFederalReserveFinancialAccounts(FA).Thus,wedecidedtofollowtheapproachoutlinedinAppendixAandBinDettling,etal.(2015),namelybenchmarkingthe2016SCFbasedon“conceptuallyequivalent”values. Specifically, we set SCF benchmark factors to ensure that SCF-weighted aggregatescoincidewithconceptuallycomparableNIPAandFAaggregates.Forwagesandself-employmentincome(reportedfor2015inthe2016SCF)weuse2015NIPAaggregates.Forassets,weuseFA-2016Q3aggregates.

Table 1a details the overall values, their sources, and our benchmark adjustments. First,weinflate all SCF-reported wage income by 12.3 percent to match the NIPA 2015 measure ofemployeecompensation.Second,wedeflateallSCF-reportedself-employmentincomeby29.3percenttomatchtheNIPA2015proprietorshipandpartnershipincometotal.Thefactthatweneedtoinflatewageincomeandsignificantlydeflateself-employmentincometomatchnationalaggregatesmayreflect,inpart,atendencyofSCFrespondentstoreportwageearningsasself-employmentincome.Third,weinflateallwageandself-employmentincomeamountsreportedinthe2016SCFbynominalaveragewagegrowththrough2017.4Benchmarking assets andnetworth reported in the SCF requires several adjustments to theFinancialAccountsvalues.UsingtheapproachoutlinedinAppendixBofDettling,et.al.(2015),we first created a net worth breakdown as detailed in Table 1b. We then adjusted thecorrespondingTFAcomponentstoalignwiththeparticularFAaggregateproducingthetable1c’sreportednetworth.ThedifferenceinnetworthisalmostentirelyduetodifferencesinLiabilities.Ourliabilitiesare17.2percentlowerthanintheFA.Wechosenottobenchmarkourliabilitiesasweweren’t clearhowtodosoonacomponentbycomponentbasis,e.g.,whether toadjustmortgagedebtbythesamepercentageasstudentloans.Furthermore,TFAdoesn’tusedliabilityvaluesperse.Itusesrepaymentvalues,suchasmonthlymortgagepayments,initscalculations.Webelievethatrespondentshavefarmoreaccurateknowledgeofwhattheyneedtorepayeverymonthwith respect to theirmortgages, car loans, student loans, etc. than of the remainingbalanceontheseliabilities.OurfirstassetadjustmentwastoreduceSCF-reportedhomemarketvalueby11.6percenttomatchthe2016Q3FederalReserveFinancialAccountsmeasure.Second,wereducetheSCF-reported equity in non-corporate businesses by 38.0 percent tomatch the 2016Q3 FederalReserveFinancialAccountsestimate.Fourth,weincreasedreportedretirementaccountassetsby 4.4 percent tomatch the total reported for 2016Q3 Federal Reserve Financial Accounts.Finally,weinflateallfinancialandnon-financialassetsbythegrowthrateimpliedbythechangeintotalassetsbetween2016and2017intheFinancialAccounts5.Ourbaselinecorporatetaxrateisderivedrelativetoallcapitalincome,basedonthetraditionalHarbergeranalysisthatattributestheincidenceofcorporatetaxestoallcapitalincome,whethercorporateornon-corporate.Tomakethiscalculationweuse2017nationalincomelessindirectbusiness taxes as reported in the 2017 NIPA. We then calculate the ratio of employeecompensationtonetnationalincomelessproprietorshipincometofindtheportionofnational

4https://www.ssa.gov/oact/cola/AWI.html#Series reports Social Security’s average wage index series through 2016. We assume the same growth rate for 2017 as that reported for 2016. 5FederalReserveZ.1-FinancialAccounts,B.101,Line1,2016-2017

income attributed to capital. Finally, we divide total corporate taxes less taxes on FederalReserveprofitsbycapitalincomegivinganoverallcorporatetaxrateof9.3percent6.InmodelingtheTCJA,wereducedourcorporatetaxrate,by12.4percent.Thisistheaverage,over the next five years, due to TCJA, in the Joint Committee on Taxation’s static projectedcorporatetaxrevenuelossdividedbythe2017NIPAestimateofcorporatetaxrevenue.7OneusefulcheckofourbenchmarkingprocedureistocompareourresultstothoseoftheJointCommitteeonTaxation,whicharebasedontaxreturndata.Table2showsaveragecurrent-yeartaxratesunderoldlaw,undertheTCJA,andthechangebetweenthetwo,fromJCT(2017a)andaccording to our calculations, where we adhere as closely as possible to JCT’s incomeclassificationandincomeandtaxdefinitions.8Asthetableshows,ourmeasuresarerelativelyclosetoJCT’s.Indeed,thecorrelationcoefficientbetweenourstaticTCJAaverageratesandtheJCT’s across the income categories in table 2 is 96.0 percent.Moreover, like JCT,we find anincrease in percentage tax cuts as income increases, although this upward trend is lesspronouncedinouranalysis.ThefactthatweareabletocomereasonablyclosetotheJCT’sanalysisofprogressivitywiththeSCFdata,butthat,asshownbelow,ourpreferredmethodofassessingprogressivityproducesadifferentpicturebasedonthesesamedataindicatesthatourfindingsarenotdrivenprimarilybydifferencesindata,butthatdifferencesinmethodologyplayanimportantrole.

5. FindingsRemainingLifetimeSpendingInequality

Tables3-5considerourcentralmeasureofinequality,namelywithin-cohort,lifetimespendingshares of different resource-percentile groups. Specifically, the tables show, by cohort, thelifetime spending shares for the top 1 percent, middle 20 percent and poorest 20 percent,respectively,underoldlaw,TCJAwithnowageincreaseandunderTCJAwitha5.5percentwageincrease.Top,middle,andpoorestrefertotheresourcerankingofhouseholdswithincohorts. 6AllvaluesusedtoderiveourcorporatetaxratearefromNIPA2017.NetNationalIncome(NNI)equalsTable1.7.5Line16minusLine18.CapitalIncome(CI)equals(1minusTable2.1Line2dividedby(NNIminusTable2.1Line9))timesNNI.CorporateTaxRateequals(Table3.1Line5minusTable3.2Line8)dividedbyCI.7https://www.jct.gov/publications.html?func=startdown&id=50538 We are unable to include certain components of JCT’s expanded income measure, including worker’scompensation,alternateminimumtaxpreferenceitems,individualshareofbusinesstaxes,andexcludedincomeofU.S.citizenslivingabroad.TheJCTisalsousing2013IRSdata,whichisthelatestsuchdataavailable,whereasourSCFdatareferenceeither2015or2016.OurapproachandtheJCT’s(atleastwithrespecttotable2)bothassumethattheincidenceofthecorporateincometaxfalls100percentonownersofcapital.TheJCTalsoassumesthatnearly10percentofcorporateincomeaccruestoforeignowners,whoseburdenisexcludedfromtheircalculation(JCT,2013).Wemakenoadjustmentinouranalysisforforeignownership.

Aquickglanceacross the rows in the three tables shows that thedistributionof spending isessentiallyunchangedundertheTCJAregardlessofwhetherwagesremainfixedorriseby5.5percent.Withnowageincrease,thespendingshareofthetop1percentisunchangedforfiveofthe six age-cohorts, and it falls slightly for one. With the wage increase, the top-1 percentspendingshareremainsfixedforthreecohorts,fallsslightlyforoneandrisesslightlyfortwo.Amongmiddle-quintilehouseholds,spendingshares, in theno-wage increase,are identical infiveofsixcases,andslightlylowerintheotherone.Withthewageincrease,thesharesarethesameinjustonecase,slightlyhigherinoneandslightlylowerinfour.Finally,amongthebottomquintilewithnowageincrease,spendingsharesarethesameforonecohortandslightlylowerforfivecohorts.Withwageincreases,spendingsharesareslightlyloweracrossallsixcohorts.Thisreflectsthesmallershareofresourcesamongthebottomquintilethanamongotherquintilesthat’srepresentedbyhumanwealth.SharesofRemainingLifetimeTaxes

Tables 6-8 repeat tables 3-5, but consider remaining lifetime taxes, not remaining lifetimespending. Here, again, we see very small changes from TCJA. The top 1 percent with oneexception–70yearolds--payaslightlyhighershareofremaininglifetimetaxesthantheydowithoutthereformandthisholdsregardlessofthesizeofthewageincrease.Thesameholdsforthemiddleandbottomquintileswithinthedifferentcohorts.There iscertainlynosystematicshiftingofthetaxburdenawayfromthericharisingfromTCJA.ImpactonAverageSpendingLevelswithinCohort,forTop1%andMiddleandBottomQuintiles

Thenextsetoftables,9-11,reportaverageremainingspendinglevelsfortheoldtaxregimeaswellasunderTCJAwithandwithoutwageincreases,withpercentageincreasesinparentheses.Asabove,theanalysisisbycohortforthetop1percent,middleandbottomquintiles.Ignoringwageincreases,theaveragespendingincreasesrangefrom0.0percentforthepoorest70-79yearoldsto2.6percentforthemiddlequintileof20-29yearolds.Withwageincreases,theaveragespendingincreasesrangefrom0.1percentforthepoorest70-79yearoldsto7.0percentforthemiddlequintileof20-29yearolds.Thebottomquintileclearlyexperiencesthesmallestincreaseinspendingwhetherornotwagesrise.Butthedifferentialislargeriftheydorise.Thisisexpectedgiventhatthepoorpayrelativelylittleintaxesandrelytoamuchlargerextentontransferpaymentstofinancetheirspending.Depending on the age cohort, the superrich enjoy larger or smaller percentage spendingincreasesthanthemiddleclassdependingtosomedegreeonwhetherornotwagesrise.AverageChangesinSpendingandShareofTotalWithin-CohortSpendingChanges

AnotherperspectiveonwinnersandlosersfromTCJAisthesizeanddistributionofchangesinlifetimespending.Consider,inthisregard,tables12-14.Table12focuseson40-49yearoldsforthecaseofnowageincrease.Itshowsthattheaverageabsoluteincreaseinremaininglifetimespendingforthetop1%is$320,624.Thisis81.0timestheaveragespendinggaininthelowestquintile.Ifonejudgesfairnessbasedonabsolutespending,TCJAisclearlyhighlyunfair.Butifoneconsiderstheshareofthespendingincreaseenjoyedbythetop1percent,it’s9.7percent.Thisfigure is smaller than this group’s 12.9 percent of total cohort spending (see Table 3).Consequently,therichest1percentendupwithaslightlysmallershareoftotalcohortspendingunderTCJAthanbeforeitwasenacted.Thisissupportedbythemiddlecolumnoftable12,whichshowsthattheaveragepercentageincreaseinspendingofthetop1percentof40-49yearoldsislowerthanthatofotherresourcepercentilegroupswiththeexceptionofthatofthebottomquintile.Table13,whichshowresultsfor20-29yearolds,tellsaverysimilarstory,althoughtheaverageabsolutespendinggainofthetop1percentis27.0,not81.0,timesthatofthebottomquintile.Thetop1percentaccountfor7.0percentofthecohort’stotalspendinggain.Thiscompareswiththeirpre-reform12.5percentshareofcohortspending.Themiddlecolumnof this tablealsoshows that the top 1 percent experience, on average, the smallest percentage increase inspendingofanyresourcepercentilegroupinthiscohort.Thestoryfor70-70yearolds,providedbytable14,issomewhatdifferent.Forthiscohort,theaveragespendingincreaseofthetop1percentisthehighestamongthethreeagecohorts,at$389,887.Forthelowestquintile,theaveragespendinggainisonly$84.That’saratioof4,641to1!Forthemiddlequintile,theaveragegainisjust$4,080.Moreover,thetop1%of70-79yearoldsgarner28.5percentoftheircohort’stotalspendinggains,whichexceedstheir21.7percentshareofspendingundertheoldtaxlaw.Theiraveragepercentageincreaseinspendingishigherthanforotherresourcegroups.Still,atthelevelofprecisionmeasuredintable3,thespendingshareofthetop1percentisonlyslightlyhigher(0.1percent)intheno-wage-increasecasethanprereform.AverageRemainingLifetimeNetTaxRatesAnothermeansofexaminingprogressivityistoconsiderchangesinaverageremaininglifetimenettaxratesarisingfromthereform.Figures1-3dothisfortheage40-49cohort.Figure1showsrates pre-reform. Figures 2 and 3 show rates post reformwithout andwithwage increases,respectively. Comparison of figures 1 and 2 shows small cuts in net tax rates (ignoring anyeconomy-widewageincrease),whetheronecalculatestaxratesbasedonalifetimeorcurrent-yearbasis.9Moreover,thesecutsinnettaxratesaresimilarinsizeforallresourcegroups.Forexample,ournet lifetime tax rates fallby, respectively,1.0,1.5,1.6,1.6,and1.5percentagepointsforthefivequintilesandby1.4and1.0percentagepointsforthetop5percentandtop1

9Current-yearnettaxratesare2018nettaxesdividedbycurrent-yearincome.

percentoftheresourcedistribution.Thechanges(again,betweenfigures1and2) inaveragecurrent-year net tax rates are alsoquiteuniformacrossour resource groups, falling in the7percentilegroupsby1.2,1.3,1.3,1.3,1.4,1.4,and0.9percentagepoints,respectively.Tosummarize,partitioningbyagegroup,aseconomicreasoningsuggests,andalsofocusingonnet,notgrosstaxratesleavesTCJAveryslightlyregressive.Andthisistruewhetherweconsiderremaininglifetimenettaxratesorcurrentyearnettaxrates.Table 3 shows the impact on net tax rates of higherwages. This pushes certain households,particularly those in the lowest quintile, into higher brackets, raising their net tax ratessomewhat.WithinCohortandResourcePercentileDifferencesinTreatment

AfinalimportantfeatureofTCJAisitsredistributionacrosshouseholdswithinthesamecohortand, indeed,within thesameresourcepercentile rangewithingivencohorts.Figures4and5show, for the age40-49 cohort, scatterplots of before andafter remaining lifetime spendinglevelswithoutandwithwageincreases.Withnowageincreases,mostpointslieabovethe45-degree line,butnot farabove.Thisaccordswiththesmallnettax-ratereductions impliedbyfigures1and2.Withthewageincrease,thepointsliefarthernorthofthe45-degreeline.Somepoints are farther out than others. Figures 6 and 7 explore this. They show histograms ofpercentagechanges in lifetimespendingforthe40-49year-oldcohortbothwithoutandwithwageincreases.Bothfiguresindicatesignificantdifferencesacrosshouseholdsintheextentoftheirwelfaregainfromthetaxreform.Thespreadbetweenmaximumandminimumvaluesintables12-14showthatdifferencesintreatmentundertheTCJAoccurnotjustacrosshouseholdswithdifferentresources,butalsoacrosshouseholdswithsimilarlevelsofresources.6. Conclusion

TheTaxCutandJobsActof2017madesignificantchangestothestructureofbothcorporateandpersonalfederaltaxes.ThisstudyusedTheFiscalAnalyzerinconjunctionwiththeFederalReserve’s2016ConsumerExpenditureSurveytostudytheTCJA’sprogressivityanditseffectonspendinginequality.Ourresultscompareoutcomeswithincohortsandarebasedonremaininglifetimenettaxationandspending.Analyzingfiscalprogressivityonaremaininglifetime,ratherthancurrent-yearbasis,doingsowithinagecohort,andconsideringnetratherthangrosstaxburdensare,webelieve,threeimportantandlongoverdueimprovementstoconventionalfiscaldistributionalanalysis.AsacomparisonoftheJCT’saveragetaxratesunderTCJAintable2and,forexample,theTFAaverageremaininglifetimenettaxratesportrayedinfigure1indicates,theassessmentofprogressivityisverydifferentunderthetwomethodologies.Thisisparticularlythecasewhenitcomestoconsideringthefiscalburdenonthepoor.Ourapproachalsofocusesonthebottom line,namelyhowthewithin-cohortdistributionand levelsofspendingchangebyresourcegroup.

We find that the TCJA did notmaterially alter the fiscal system’swithin-cohort progressivitywhetheronemeasuresprogressivityintermsoftheshareofspendingdonebytherichortheshareoftaxespaidbytherich.Ifthereformsucceedsinraisingwages,itwill,onaverage,produceasmall,butmeaningfulincreaseinremaininglifetimespending,i.e.,ineconomicwelfare.Asonewouldexpectfromamajorreform,therearewinnersandlosers,relativetoabenchmarkofequalreductions in net tax rates or equal percentage increases in consumption. But much of thedispersioniswithincohortmemberswithroughlythesamelevelofresources.Theseresultsarefullyconsistentwithourownestimates,andthoseofothers,thattheabsolutegainsofthoseatthetoparefargreaterthanthosewhoarelowerintheincomedistribution.Onemay,ofcourse,viewsuchadistributionofabsolutegainsasunfair,indeedextremelyunfairevenif they are consistent with maintaining the existing degree of inequality as conventionallymeasured. Also,we stress again that our results assume that the new tax provisions do notchangeovertime,eventhoughthelawformallystipulatesmanytaxincreasesthatmightaffectprogressivitybytheendoftheten-yearbudgetperiod.Finally,ouranalysisdoesn’taddresstheimportantissueoffiscalsustainabilityandrequisitemajorfuturetaxincreasesandgovernmentspendingcuts,whichwillhavetheirown,verysignificantdistributionaleffects.

References

Auerbach, Alan J., Laurence J. Kotlikoff, and Darryl Koehler. 2016. “U.S. Inequality, FiscalProgressivity,andWorkDisincentives.”NBERworkingpaperno.22032.Auerbach, Alan J., Laurence J. Kotlikoff, Darryl Koehler and Manni Yu. 2017. “Is Uncle SamInducingtheElderlytoRetire?”inTaxPolicyandtheEconomy.NBERvol.31,no1,pp.1-42.Benzell,SethG.,LaurenceJ.Kotlikoff,GuillermoLagarda.2017a.“SimulatingBusinessCashFlowTaxation:AnIllustrationBasedonthe“BetterWay”U.S.CorporateTaxReform.”NBERworkingpaper23675.December.https://www.kotlikoff.net/sites/default/files/Simulating%20the%20Better%20Way%20Tax%20Reform%20Plan.pdfBenzell, Seth G., Laurence J. Kotlikoff, Guillermo Lagarda. 2017b. “Simulating the UnifiedFrameworkTaxReform.”October.https://www.kotlikoff.net/sites/default/files/Simulating%20the%20Better%20Way%20Tax%20Reform%20Plan.pdfCongressional Budget Office. 2017. “Distributional Effects of Changes in Taxes and SpendingUndertheConferenceAgreementforH.R.1.”December.https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53429-distributionhr1.pdf.Dettling,LisaJ.,SebastianJ.Devlin-Foltz,JacobKrimmel,SarahJ.Pack,andJeffreyP.Thompson(2015). “ComparingMicro andMacro Sources for Household Accounts in the United States:EvidencefromtheSurveyofConsumerFinances,”FinanceandEconomicsDiscussionSeries2015-086. Washington: Board of Governors of the Federal Reserve System,http://dx.doi.org/10.17016/FEDS.2015.086.Fullerton,Don,andDianeLimRogers.1993.WhoBearstheLifetimeTaxBurden?.Washington,DC:BrookingsInstitution.Gravelle, Jane,andKentSmetters. “WhoBears theBurdenof theCorporateTax in theOpenEconomy?.”No.w8280.NationalBureauofEconomicResearch,2001.JointCommitteeonTaxation.2013.JointCommitteeonTaxation.2017a.“DistributionalEffectsof theConferenceAgreement forH.R.1“TheTaxCutsandJobsAct.”December18.https://www.jct.gov/publications.html?func=startdown&id=5054.

JointCommitteeonTaxation.2017b.“MacroeconomicAnalysisoftheTaxCutsandJobsAct.”November30.https://www.jct.gov/publications.html?func%3Dstartdown%26id%3D5045PennWhartonBudgetModel.2017.“TheSenateTaxCutsandJobsAct:DynamicEffectsontheBudgetandtheEconomy.”November15.http://budgetmodel.wharton.upenn.edu/issues/2017/11/21/the-senate-tax-cuts-and-jobs-act-amended-111517-dynamic-effects-on-the-budget-and-the-economyPoterba,J.M.,1989.Lifetimeincidenceandthedistributionalburdenofexcisetaxes.NBERworkingpaperno.2833.TaxPolicyCenter.2017.“DistributionalAnalysisoftheConferenceAgreementfortheTaxCutsandJobsAct.”TheTaxPolicyCenter,Washington,D.C.December18.http://www.taxpolicycenter.org/sites/default/files/publication/150816/2001641_distributional_analysis_of_the_conference_agreement_for_the_tax_cuts_and_jobs_act_0.pdf

Table1aBenchmarkingTFA

Line Variable Data(Billions)BenchmarkedTFAEstimateValue(Billions)

BenchmarkFactor DataSource

1 Wages 7,858.9 7,858.8 1.1227

NIPAdata-Table2.1.PersonalIncomeandItsDisposition-Line2–2015

2 Self-employmentIncome

1,318.8 1,318.7 0.7067

NIPAdata-Table2.1.PersonalIncomeandItsDisposition-Line9–2015

3HomeMarketValue,owner-occupied 22,588.8 22,589.1 0.8836

FinancialAccounts–Z.1,B.101,Line4

4EquityinNon-

corporatebusiness 11,156.5 11,156.0 0.6202FinancialAccounts–Z.1,B.101,Line28

5 RegularAssets 32,506.7 32,505.1 0.9936

ConceptuallyEquivalentFinancialAssetsFA(Table1b)minusRetirementAccounts(Table1aLine6)

6 RetirementAccounts 14,407.8 14.408.5 1.0444FinancialAccounts–Z.1,L.117,Line26&27

Sources:NationalIncomeandProduceAccount(NIPA)2015;FinancialAccountsoftheUnitedStates–Z.1,March,2017Release

Table1bFAValuesthatAreConceptuallyEquivalenttoSCFAggregates($Billions) PublishedNetWorthFA 90,762.1 SourcePublishedNonfinancialAssetsFA 31,827.2 B.101-Line2 (-) IdentifiableNonprofitNetWorth RealEstate 3,382.4 B.101-Line5 Equipment 336.6 B.101-Line6 IntellectualProperty 145.2 B.101-Line7

(-) ConsumerDurableGoods 5,374.1 B.101-Line8 (+) EquityinNon-corporate Business 11,156.5 B.101-Line28ConceptuallyEquivalent(toSCF) FANonfinancialAssets 33,745.4 PublishedFinancialAssetsFA 73,889.5 B.101-Line9 (-) IdentifiableNonprofitNetWorth OpenMarketPaper ConsumerCredit(StudentLoans) 39.9 B.101-Line22

(-) LifeInsuranceReserves 1,356.6 B.101-Line26 (-) Misc.Assets 983.8 B.101-Line29 (-) OtherloansandAdvances 862.3 B.101-Line20 (-) Mortgages 112.9 B.101-Line21 (-) PensionEntitlements 22,078.2 B.101-Line27 (-) EquityinNon-CorporateBusiness 11,156.5 B.101-Line28 (+) PensionEntitlements DCPensions 6,640.8 L.117-Line26 AnnuitiesinIRAsatLifeInsCo. 2,974.4 L.227-Line2ConceptuallyEquivalent(toSCF) FAFinancialAssets 46,914.5 PublishedLiabilitiesFA 14,954.6 B.101-Line40 (-) IdentifiableNonprofitNetWorth MunicipalSecurities 219.6 B.101-Line31 CommercialLoansandAdvances 238.5 B.101-Line37 TradePayables 314.2 B.101-Line38 (-) DepositoryInstitutionloansn.e.c. 319.2 B.101-Line35 (-) OtherloansandAdvances 448.0 B.101-Line36 (-) DeferredandUnpaidLife InsurancePremiums 32.7 B.101-Line39ConceptuallyEquivalent(toSCF) FALiabilities 13,382.4 ConceptuallyEquivalent(toSCF) FANetWorth 67,277.5

Table1cBenchmarkingTFANetWorthtoFinancialAccounts

(Billions)FAConceptuallyEquivalentValue

BenchmarkedTFAEstimateusingSCF

Non-financialAssets: 33,745.4 33,746.3FinancialAssets: 46,914.5 46,913.6Liabilities: 13,382.4 11,084.3NetWorth: 67,277.5 69,575.5

Table2.DistributionalEffectsoftheTCJA,2019

TFAEstimates JCT(2017a)Estimates

IncomeCategory

Avg.TaxRateUnder

PresentLaw

Avg.TaxRateUnder

TJCA Change

Avg.TaxRateUnder

PresentLaw

Avg.TaxRateUnder

TJCA ChangeLessthan10,000 7.25% 6.46% -0.79% 9.10% 8.60% -0.50%10,000to20,000 4.04% 3.25% -0.79% -0.70% -1.20% -0.50%20,000to30,000 3.05% 1.93% -1.12% 3.90% 3.40% -0.50%30,000to40,000 7.14% 5.80% -1.34% 7.90% 7.00% -0.90%40,000to50,000 9.58% 8.27% -1.30% 10.90% 9.90% -1.00%50,000to75,000 11.43% 10.01% -1.43% 14.80% 13.50% -1.30%75,000to100,000 13.87% 12.33% -1.53% 17.00% 15.60% -1.40%100,000to200,000 18.48% 16.68% -1.80% 20.90% 19.40% -1.50%200,000to500,000 25.34% 23.17% -2.17% 26.40% 23.90% -2.50%500,000to1,000,000 33.78% 31.23% -2.55% 30.90% 27.80% -3.10%1,000,000andover 38.30% 36.92% -1.38% 32.50% 30.20% -2.30%

Table3ShareofRemainingLifetimeSpendingofTop1%,byCohort

CohortAgeRange OldLaw TCJAAssumingNoWageIncrease

TCJAAssuminga5.5%WageIncrease

20-29 12.5% 12.3% 12.3%

30-39 10.7% 10.7% 10.6%

40-49 12.9% 12.9% 12.8%

50-59 18.3% 18.3% 18.2%

60-69 19.7% 19.7% 19.7%

70-79 21.7% 21.8% 21.8%

Table4ShareofRemainingLifetimeSpendingof3rdQuintle,byCohort

20-29 14.9% 14.9% 15.0%

30-39 15.6% 15.5% 15.6%

40-49 14.1% 14.1% 14.1%

50-59 10.1% 10.1% 10.1%

60-69 10.3% 10.3% 10.3%

70-79 10.2% 10.2% 10.2%

Table5ShareofRemainingLifetimeSpendingofBottomQuintle,byCohort

20-29 7.4% 7.3% 7.2%

30-39 7.3% 7.2% 7.1%

40-49 6.5% 6.4% 6.3%

50-59 5.3% 5.3% 5.2%

60-69 5.3% 5.3% 5.2%

70-79 5.6% 5.6% 5.6%

Table6ShareofRemainingLifetimeTaxesPaidByTop1%,byCohort

20-29 13.9% 14.2% 14.1%

30-39 15.5% 15.8% 15.7%

40-49 16.6% 16.9% 16.8%

50-59 24.1% 24.6% 24.4%

60-69 25.5% 25.8% 25.6%

70-79 26.4% 26.3% 26.3%

Table7ShareofRemainingLifetimeTaxesof3rdQuintile,byCohort

20-29 13.2% 13.1% 13.1%

30-39 12.5% 12.4% 12.5%

40-49 11.8% 11.7% 11.9%

50-59 7.8% 7.7% 7.8%

60-69 6.6% 6.6% 6.7%

70-79 6.4% 6.4% 6.4%

Table8ShareofRemainingLifetimeNetTaxesofBottomQuintile,byCohort

20-29 3.3% 3.2% 3.3%

30-39 3.0% 3.0% 3.1%

40-49 2.6% 2.6% 2.7%

50-59 1.7% 1.8% 1.8%

60-69 2.0% 2.1% 2.1%

70-79 2.7% 2.8% 2.8%

Table9AverageRemainingLifetimeSpendingandPercentageIncreasesRelativetoNoReform,Top1%,byCohort

20-29 $13,409,166 $13,581,823(1.3%) $14,115,969(5.3%)

30-39 $15,496,134 $15,841,922(2.2%) $16,351,594(5.5%)

40-49 $21,758,600 $22,079,223(1.5%) $22,594,045(3.8%)

50-59 $35,965,838 $36,425,132(1.3%) $36,937,566(2.7%)

60-69 $33,996,632 $34,444,460(1.3%) $34,576,286(1.7%)

70-79 $33,309,785 $33,699,673(1.2%) $33,745,728(1.3%)

Table10AverageRemainingLifetimeSpending(PercentageIncreases)

RelativetoNoReform,ThirdQuintile,byCohort

20-29 $957,345 $981,921(2.6%) $1,024,094(7.0%)

30-39 $1,139,022 $1,164,084(2.2%) $1,208,715(6.1%)

40-49 $1,213,620 $1,236,779(1.9%) $1,276,088(5.1%)

50-59 $994,140 $1,007,751(1.4%) $1,030,398(3.6%)

60-69 $932,663 $939,748(0.8%) $945,040(1.3%)

70-79 $819,781 $823,861(0.5%) $824,352(0.6%)

Table11AverageRemainingLifetimeSpendingandPercentageIncreases

RelativetoNoReform,BottomQuintile,byCohort

20-29 $473,679 $480,083(1.4%) $489,659(3.4%)

30-39 $539,698 $545,650(1.1%) $553,349(2.5%)

40-49 $558,498 $562,458(0.7%) $569,748(2.0%)

50-59 $522,383 $524,027(0.3%) $525,095(0.5%)

60-69 $481,259 $481,570(0.1%) $481,922(0.1%)

70-79 $451,966 $452,051(0.0%) $452,198(0.1%)

Table12AverageChangesandShareofTotalChangesinRemainingLifetimeSpending,Ages40-49,AssumingNoWageIncrease

Quintile

AverageChangeinRemainingLifetimeSpending

ShareofTotalChangesinRemainingLifetimeSpending

PercentageChangeinAverageSpending

MinimumPercentageChangeinSpending

MaximumPercentageChangeinSpending

Lowest $3,960 2.34% 0.75% -5.539% 2.77%

Second $13,957 8.32% 1.66% -1.209% 3.09%

Third $23,159 13.71% 1.94% -0.477% 3.44%

Fourth $34,966 20.74% 2.05% -0.053% 4.09%

Highest $92,315 54.89% 1.97% -2.063% 5.88%

Top5% $183,803 27.39% 1.79% -2.063% 5.48%

Top1% $320,624 9.74% 1.36% -2.063% 4.08%

Quintile

Lowest $6,404 4.33% 1.31% -0.300% 3.14%

Second $14,127 9.59% 2.10% 0.273% 4.06%

Third $24,576 16.56% 2.61% 1.513% 3.67%

Fourth $38,021 25.58% 2.71% 0.220% 4.16%

Highest $65,287 43.95% 2.44% -0.973% 5.25%

Top5% $110,070 18.60% 2.16% -0.973% 5.25%

Top1% $172,658 6.96% 0.85% -0.973% 5.25%

Quintile

Lowest $84 0.12% 0.02% -0.074% 0.22%

Second $1,490 2.06% 0.26% -0.090% 1.72%

Third $4,080 5.72% 0.48% -0.229% 1.85%

Fourth $12,888 17.99% 0.95% -0.046% 2.48%

Highest $52,911 74.12% 1.07% -0.935% 4.09%

Top5% $139,286 49.15% 1.17% -0.935% 4.09%

Top1% $389,887 28.52% 1.27% -0.935% 4.09%

Figure1OldTaxLaw–AverageRemainingLifetimeandCurrent-Year

NetTaxRates,byPercentileRange,Ages40-49

-41.6%

9.1% 15.8%

20.8% 29.8% 32.3% 34.1%

-12.1%

21.7% 25.0% 28.2% 33.2% 35.3% 37.8%

Lowest Second Third Fourth Highest Top5% Top1%AverageLifetimeNetTaxRate AverageCurrentYearNetTaxRate

Figure2TCJA–AverageRemainingLifetimeandCurrent-YearNetTaxRates,byPercentileRange,Ages40-49,AssumingNoRiseinWages

Figure3TCJA–AverageRemainingLifetimeandCurrent-YearNetTaxRates,byPercentileRange,Ages40-49,Assuming5.5%RiseinWages

-42.6%

7.7% 14.2%

19.2% 28.3% 30.9% 33.1%

-13.3%

20.4% 23.8% 27.0% 31.8% 33.8% 37.0%

-37.9%

9.0% 15.3%

20.0% 28.9% 31.5% 33.7%

-11.0%

21.4% 24.5% 27.6% 32.2% 34.3% 37.3%

Figure4ComparingPre-andPost-ReformLifetimeSpending,Ages40-49,Assuming0%RiseinRealWages

10,000

0 2,000 4,000 6,000 8,000 10,000

Remaining

Lifetim

ending

erTCJA

RemainingLifetimeSpendingUnderOldTaxSystem

Thousands

Figure5ComparingPre-andPost-ReformLifetimeSpending,Ages40-49,Assuming5.5%RiseinRealWages

10,000

0 2,000 4,000 6,000 8,000 10,000

Remaining

Lifetim

ending

erTCJA

RemainingLifetimeSpendingUnderOldTaxSystem

Thousands

Figure6Shareof40-49CohortbyPercentChangeinRemainingLifetimeSpending,Assuming0%RiseinRealWages

Figure7Shareof40-49CohortbyPercentChangeinRemainingLifetimeSpending,Assuming5.5%RiseinRealWages

-1.00%

-0.62%

-0.23%

PercentChangeinRemainingLifetimeSpending

-1.00%

-0.62%

-0.23%

PercentChangeinRemainingLifetimeSpending

The New Tax Bill -- Winners and Losers 06-30-2018auerbach/The New Tax Bill -- Winners and... ·...

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