What Else Could a Tax Cut for the Richest 1% Buy? A 50-State Perspective

Nov. 10, 2017 - Download PDF Version

Inequality in America has been growing for decades, stymying our national potential and contributing to the growing political rift in the country. According to estimates by the Institute on Taxation and Economic Policy, the Tax Cuts and Jobs Act introduced in the House of Representatives would disproportionately benefit the richest 1 percent of Americans. 

The ITEP estimates reveal that nationwide, the richest 1 percent of earners would receive a 31 percent share of the tax cuts in 2018 – and by 2027, the richest 1 percent would receive a 48 percent share, leaving the remaining 99 percent to share roughly half the tax benefits.

What the ITEP estimates cannot reveal is the lost potential in federal investment represented by this reallocation of resources to the 1 percent. The House bill is designed to increase the deficit by no more than $1.5 trillion over ten years – the equivalent of about a year of federal discretionary spending.

The loss of revenue will trigger other choices, as decision makers in Congress either accede to a higher than customary level of national debt, or face political pressures to drastically reduce spending on federal programs and services. Pressure to cut spending could result in losses to popular federal programs ranging from education to health care and infrastructure, and more.

There is little certainty about what programs might be most affected, or how deep the resulting cuts could go, although recent budget proposals provide some likely scenarios. Meanwhile, basic facts remain murky for a public trying to understand what this tax plan means: how much can $1 billion buy?

As Congress considers a tax plan that would bestow an estimated $72 billion in tax cuts on the richest 1 percent in 2018 alone, it’s worth clarifying what tax cuts for the 1 percent means for residents of each state. We look at what alternative budget choices might be, comparing the aggregate estimated tax cut for the richest 1 percent in each state to alternative budget choices on health care, higher education and infrastructure.

For example: in the United States, the richest one percent – with average incomes of $2 million – will collectively get $72 billion in tax cuts in 2018 under the Trump plan. That money is enough to cover individual health insurance premiums for more than 12.6 million adults. Or, that $72 billion could cover Pell grants for 12.3 million low-income, and often first generation, college students. Or, that same $72 billion could create 689,900 jobs through infrastructure investment.

Tax Cuts for the Richest 1%: What else could they pay for?

       
 

Average Income of Richest 1%

 Average Tax Cut for Richest 1% 

Cumulative Tax Cut for Richest 1%

Annual Individual Health Insurance Premium

# Health Insurance Premiums

 # Pell Grants ($5,920 each) 

 # Infrastructure Jobs 

United States $2,004,400  $                    48,580 $72,781,300,000 $5,760.00 12,635,642        12,294,139                               689,968
Alabama $1,436,700  $                    40,990 $948,600,000 $6,547.92 144,870              160,236                                   8,993
Alaska $1,310,800  $                    66,100 $232,500,000 $8,172.00 28,451                 39,274                                   2,204
Arizona $1,399,600  $                    44,520 $1,348,400,000 $5,649.36 238,682              227,770                                 12,783
Arkansas $1,277,700  $                    31,020 $422,500,000 $4,539.00 93,082                 71,368                                   4,005
California $2,659,200  $                    19,300 $3,289,900,000 $4,128.00 796,972              555,726                                 31,188
Colorado $1,733,500  $                    54,300 $1,471,000,000 $4,956.00 296,812              248,480                                 13,945
Connecticut $3,536,500  $                    53,480 $934,300,000 $7,152.00 130,635              157,821                                   8,857
Delaware $1,795,200  $                    33,750 $164,700,000 $7,089.36 23,232                 27,821                                   1,561
District of Columbia $3,215,700  $                    72,560 $260,600,000 $3,888.00 67,027                 44,020                                   2,470
Florida $3,045,100  $                    97,050 $10,174,600,000 $5,308.92 1,916,510           1,718,682                                 96,455
Georgia $2,002,000  $                    56,330 $2,602,400,000 $5,052.72 515,049              439,595                                 24,671
Hawaii $1,358,200  $                    29,120 $205,000,000 $5,472.72 37,459                 34,628                                   1,943
Idaho $1,462,600  $                    40,970 $316,500,000 $5,556.00 56,965                 53,463                                   3,000
Illinois $2,777,800  $                    55,890 $3,232,100,000 $4,931.28 655,428              545,963                                 30,640
Indiana $1,572,700  $                    39,840 $1,238,900,000 $4,397.76 281,712              209,274                                 11,745
Iowa $1,212,900  $                    36,100 $535,200,000 $7,872.12 67,987                 90,405                                   5,074
Kansas $1,786,300  $                    55,460 $733,600,000 $6,846.60 107,148              123,919                                   6,955
Kentucky $1,257,900  $                    28,510 $582,200,000 $4,759.80 122,316                 98,345                                   5,519
Louisiana $1,178,700  $                    44,560 $929,000,000 $5,938.92 156,426              156,926                                   8,807
Maine $1,254,900  $                    22,180 $149,500,000 $6,161.40 24,264                 25,253                                   1,417
Maryland $1,826,200  $                    47,060 $1,375,900,000 $5,472.00 251,444              232,416                                 13,044
Massachusetts $2,938,800  $                    75,870 $2,618,700,000 $3,600.00 727,417              442,348                                 24,825
Michigan $1,591,200  $                    52,820 $2,479,600,000 $3,983.04 622,540              418,851                                 23,507
Minnesota $2,563,200  $                    37,740 $1,001,500,000 $3,924.00 255,224              169,172                                   9,494
Mississippi $1,159,300  $                    29,230 $398,300,000 $6,610.56 60,252                 67,280                                   3,776
Missouri $1,627,200  $                    41,870 $1,221,400,000 $5,575.08 219,082              206,318                                 11,579
Montana $1,657,700  $                    46,190 $247,900,000 $6,041.16 41,035                 41,875                                   2,350
Nebraska $1,539,900  $                    36,580 $324,600,000 $8,124.12 39,955                 54,831                                   3,077
Nevada $2,798,700  $                 101,940 $1,351,500,000 $4,606.68 293,378              228,294                                 12,812
New Hampshire $1,686,600  $                    46,510 $309,000,000 $5,695.92 54,249                 52,196                                   2,929
New Jersey $3,142,200  $                    22,790 $955,300,000 $5,016.00 190,451              161,368                                   9,056
New Mexico $1,197,100  $                    30,250 $272,500,000 $4,816.32 56,578                 46,030                                   2,583
New York $3,114,500  $                    19,610 $1,878,400,000 $6,120.00 306,928              317,297                                 17,807
North Carolina $1,643,400  $                    38,530 $1,864,400,000 $8,001.84 232,996              314,932                                 17,675
North Dakota $1,431,500  $                    59,320 $213,300,000 $3,575.88 59,650                 36,030                                   2,022
Ohio $1,572,700  $                    38,870 $2,231,400,000 $4,840.20 461,014              376,926                                 21,154
Oklahoma $1,218,000  $                    40,790 $692,300,000 $6,088.44 113,707              116,943                                   6,563
Oregon $1,835,400  $                    32,050 $667,000,000 $4,560.00 146,272              112,669                                   6,323
Pennsylvania $1,837,500  $                    46,000 $2,919,100,000 $7,626.60 382,752              493,091                                 27,673
Rhode Island $1,673,500  $                    35,500 $188,300,000 $3,732.00 50,456                 31,807                                   1,785
South Carolina $1,159,000  $                    39,440 $928,000,000 $5,990.40 154,915              156,757                                   8,797
South Dakota $1,663,900  $                    88,260 $392,900,000 $5,437.80 72,253                 66,368                                   3,725
Tennessee $1,776,900  $                    43,820 $1,373,200,000 $7,212.72 190,386              231,959                                 13,018
Texas $1,833,500  $                    74,300 $9,130,400,000 $4,791.72 1,905,454           1,542,297                                 86,556
Utah $1,575,300  $                    57,970 $720,600,000 $6,208.20 116,072              121,723                                   6,831
Vermont $1,173,500  $                    28,840 $90,200,000 $6,060.00 14,884                 15,236                                       855
Virginia $1,666,200  $                    54,920 $2,238,200,000 $5,491.32 407,589              378,074                                 21,218
Washington $2,031,700  $                    80,240 $2,907,400,000 $4,068.00 714,700              491,115                                 27,562
West Virginia $737,800  $                    18,830 $167,100,000 $6,877.92 24,295                 28,226                                   1,584
Wisconsin $1,800,200  $                    51,180 $1,431,100,000 $6,812.28 210,077              241,740                                 13,567
Wyoming $2,322,400  $                 101,950 $282,100,000 $9,556.80 29,518                 47,652                                   2,674
Sources: Institute on Taxation and Economic Policy; Healthcare.gov; Kaiser Family Foundation; Dept. of Education; Feyrer & Sacerdote (Dartmouth/ NBER)

 

Methods & Data Sources

For the cumulative and average tax cuts to the richest 1 percent in each state, as well as the average income of the richest 1 percent in each state, we relied on estimates from the Institute on Taxation and Economic Policy Microsimulation Tax Model for the Tax Cuts and Jobs Act introduced on November 2, 2017.

Health premiums

For health insurance premium costs in the individual marketplace, we relied primarily on 2018 premium data registered by insurance providers with healthcare.gov. The premium cost for our calculations was the cost of the second-least expensive Silver plan in the most populous county in each state, for a single 40-year-old adult.

Because healthcare.gov data only covers states in the federal marketplace, we also used data from the Kaiser Family Foundation’s 2018 premium calculator for the United States and for states with their own marketplaces (California, Colorado, Connecticut, District of Columbia, Idaho, Maryland, Massachusetts, Minnesota, New York, Rhode Island, Vermont, and Washington). We used the unsubsidized premium for the second-lowest cost Silver plan for a single, 40-year-old nonsmoker in each state’s most populous county.

Pell grants

The maximum Pell grant award for the 2017-2018 school year is $5,920. Our calculations represent the number of maximum awards that could be covered.

Infrastructure Jobs

The number of infrastructure jobs created by a federal investment depends on many factors: the specific type of infrastructure, the location, the likelihood that the infrastructure would be built without a federal investment, and more.

For the purposes of these calculations, we reviewed various estimates of the cost per infrastructure job created, ranging from roughly $36,000 per job created (Feyrer & Sacerdote, 2011) for investment through the Department of Transportation, to $92,136 per job created by government investment under ARRA (Council of Economic Advisors, 2009), among others.

For these calculations, we use an estimate from Feyrer & Sacerdote (Dartmouth/ NBER, 2011) of $105,485 per job created by federal investments through the Department of Transportation, Department of Energy, and the Environmental Protection Agency. Since the cost per job is high compared to other estimates, our estimates of job creation may be low. Also, in reality job creation costs are likely to vary by state. The Feyrer & Sacerdote approach means the reported job effects represent direct, indirect and induced effects – that is, employment in construction and related industries directly resulting from federal investment, but also the resulting boost to the local economy as the initial investment passes through to existing local businesses and their employees.