Regular readers of Tax Foundation reports know that we publish estimates of the distributional impact of federal 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. changes: that is, we estimate how a tax reform might affect the after-tax incomes of taxpayers at different income levels.
The way we usually have organized this is by percentile. For example, if you’re at the 60th percentile on our income tables, that means that for every 100 taxpayers, about 40 people would have higher incomes than you, and 60 would have lower incomes than you. One thing we’ve been asked is what are the cutoffs or thresholds for the different ranges. That is, what amount of income corresponds to the 60th percentile?
That’s a fair question, and I’ll answer it in a chart below.
Furthermore, we’ve often been asked whether what our distributional tables would show if, rather than percent changes in 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. , we showed dollar estimates instead. For a variety of reasons, we think percent change in after-tax income is here.
| Income Group | Pre-tax AGI range | Trump, Higher Rate | Trump, Lower Rate | Clinton |
|---|---|---|---|---|
| 0% to 20% | $0 to $12,521 | $97 | $97 | $0 |
| 20%-40% | $12,522 to $27,249 | $181 | $181 | $0 |
| 40%-60% | $27,250 to $48,651 | $488 | $488 | $0 |
| 60%-80% | $48,652 to $88,147 | $1,174 | $1,174 | $0 |
| 80%-100% | $88,148+ | $7,052 | $10,417 | $0 |
| Top 10 percent | $132,589+ | $12,326 | $18,945 | -$1,598 |
| Top 1 percent | $469,550+ | $86,355 | $135,460 | -$14,393 |
| ALL | $1,818 | $2,521 | -$176 |
In other words, Donald Trump’s plan is a tax cut for all income groups, while Hillary Clinton’s plan is a tax increase on selected income groups.
Our dynamic distributional estimates are more complicated; they only fully phase in if there’s ten years under the new plan. So the earliest you’d practically be seeing the dynamic change in after-tax income from either plan would be by 2026. If that seems a long ways away, I agree; estimates in 2026 dollars could get a little bit goofy. So at least, for those, I think percentage estimates, rather than dollar estimates, remain the more informative measure.
Our view is that if Donald Trump’s tax cuts can be appropriately financed, they would do a great deal of good and increase incomes substantially across the board over the long run, by 6.9% or even more. However, according to some fiscal policy organizations that are tallying up the math, such as the Committee for a Responsible Federal Budget, these tax cuts may not be appropriately financed. The means of financing could, in some cases, reduce the growth projected here. For example, implementing tariffs would harm U.S. consumers’ purchasing power, reducing real after-tax incomes. Cuts to some government investment would also reduce growth.
On Hillary Clinton’s tax cuts, our dynamic distributional estimates suggest that her tax increases ultimately could reduce incomes modestly, even for middle-class Americans, because she has a number of taxes that would fall partly on the equipment they use to do their jobs, making them less productive. The question is whether Clinton would spend these tax increases on useful, productivity-enhancing investments that may compensate for the effects of her tax increases.
Overall we continue to think percentiles and percentages are the most useful and flexible way to publish our results, but we hope that this post can be useful to those hoping to see things in more concrete terms.
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