Congress is expected to vote this week on passage of the Tax Cuts and Jobs Act. Americans are trying to understand how changes to the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code will affect their families. Congress’s plan would grow the economy while simplifying the tax code for most filers and reducing marginal rates.
Using the Tax Foundation’s Taxes and Growth (TAG) macroeconomic model, our analysis found that “the plan would significantly lower marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. s and the cost of capital, which would lead to a 1.7 percent increase in GDP over the long term [and] 1.5 percent higher wages.”
The TAG model estimates that the plan would result in the creation of roughly 339,000 new full-time equivalent (FTE) jobs, while increasing the after-tax incomes by 1.1 percent in the long run, meaning families would see an after-tax incomeAfter-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize their earnings. boost of 1.1 percent by the end of the decade, even after temporary individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. cuts expire.
The increase in family incomes is due in part from individual income tax reductions and the broader rise in productivity and wages due to economic growth. These estimates take into account all aspects of the Tax Cuts and Jobs Act, including changes to the individual and corporate tax codes.
The table below illustrates the state-by-state impact of the plan for both new jobs and the boost to after-tax incomes for middle-income families.
| Total | Estimated FTE Jobs Added | Estimated Gain in After-Tax Income for Middle-Income Family |
|---|---|---|
| United States Total | 339,000 | $649.43 |
| Alabama | 4,632 | $519.43 |
| Alaska | 779 | $832.95 |
| Arizona | 6,340 | $628.10 |
| Arkansas | 2,878 | $504.98 |
| California | 38,631 | $733.01 |
| Colorado | 6,092 | $776.23 |
| Connecticut | 3,937 | $835.15 |
| Delaware | 1,062 | $638.51 |
| District of Columbia | 1,834 | $780.80 |
| Florida | 19,655 | $562.94 |
| Georgia | 10,264 | $588.80 |
| Hawaii | 1,518 | $793.46 |
| Idaho | 1,632 | $622.20 |
| Illinois | 14,097 | $675.25 |
| Indiana | 7,228 | $617.03 |
| Iowa | 3,682 | $650.03 |
| Kansas | 3,306 | $624.91 |
| Kentucky | 4,488 | $499.06 |
| Louisiana | 4,622 | $464.16 |
| Maine | 1,447 | $559.42 |
| Maryland | 6,348 | $811.36 |
| Massachusetts | 8,350 | $794.93 |
| Michigan | 10,141 | $628.00 |
| Minnesota | 6,789 | $772.40 |
| Mississippi | 2,684 | $452.09 |
| Missouri | 6,664 | $605.18 |
| Montana | 1,097 | $627.83 |
| Nebraska | 2,380 | $653.11 |
| Nevada | 3,048 | $609.74 |
| New Hampshire | 1,567 | $838.86 |
| New Jersey | 9,555 | $753.15 |
| New Mexico | 1,947 | $532.96 |
| New York | 22,029 | $675.81 |
| North Carolina | 10,175 | $591.40 |
| North Dakota | 1,019 | $662.02 |
| Ohio | 12,850 | $593.84 |
| Oklahoma | 3,872 | $560.37 |
| Oregon | 4,297 | $650.49 |
| Pennsylvania | 13,794 | $670.77 |
| Rhode Island | 1,149 | $676.81 |
| South Carolina | 4,815 | $597.70 |
| South Dakota | 1,014 | $631.95 |
| Tennessee | 6,953 | $564.78 |
| Texas | 28,201 | $639.61 |
| Utah | 3,347 | $742.29 |
| Vermont | 734 | $669.21 |
| Virginia | 9,185 | $730.96 |
| Washington | 7,606 | $773.41 |
| West Virginia | 1,753 | $487.89 |
| Wisconsin | 6,856 | $657.99 |
| Wyoming | 658 | $636.12 |