Benefits from tax overhaul will be felt widely in N.H., but not evenly

Monitor staff
Saturday, December 23, 2017

The overhaul of the tax code that President Donald Trump signed Friday would reduce taxes and costs for roughly 89 percent of New Hampshire’s taxpayers next year, according to an analysis by a D.C.-based group, but the benefit will be much greater for the state’s wealthiest residents, particularly those with the top 5 percent of incomes.

The analysis by the Institute on Taxation and Economic Policy also says the situation will change in 2027, when most personal tax cuts in the bill will expire. In that year, it estimates that two-thirds of New Hampshire taxpayers will still see an economic benefit from the changes but that benefit will entirely exist for people who have higher incomes. People in the bottom 60 percent of income levels – making less than $127,000 that year – will actually see a larger bite taken from their income in 2027 than if the law hadn’t been passed, the group said.

The estimate of the effect of the tax bill was made on a state-by-state basis by the non-partisan institute, which has long analyzed tax policy. The group used models it developed over time after looking at years of tax returns, along with some estimates after indirect effects on people’s income.

Among the myriad of data in its analysis – 24 categories of results for seven different income brackets for each of the 50 states – are estimates of the overall effect of the bill on different income brackets.

These estimates indicate that the benefits of the bill will be weighted toward richer people in 2019 filings, the first year it will take effect: The average tax benefit for the bottom 80 percent of incomes will be between 1.1 and 1.7 percent of total income, while the average benefit for the top 5 percent will be 3.3 percent of their income or higher. In sheer dollars, the differences are much greater.

In 2027, the group said, the disparity widens: the richest 5 percent would see a small tax cut compared to what they would have seen without the law – less than 0.2 percent – but the bottom two-thirds of income brackets will actually see small tax increases because personal tax breaks disappear while corporate tax breaks of the sort used more often by the wealthy stay in effect. This disparity will hit New Hampshire taxpayers in the bottom 20 percent of incomes the hardest: They’ll see the equivalent of a 0.3 percent hike in taxes and related payments.

The entire analysis can be seen online at itep.org/finalgop-trumpbill.

The analysis includes not just estimates on how changing tax rates will affect income taxes, but also estimates for how much health insurance costs will increase due to the elimination of the individual mandate, how much benefit people will get from tax breaks for “pass-through businesses,” and guesses as to how much of the corporate tax cut would be transferred to individuals through pay increases.

The biggest change made by the tax bill is slashing the corporate tax rate from 35 percent to 20 percent, permanently. ITEP assumes that 25 percent of the corporate tax cut will end up in workers’ pockets; some advocates of the tax overhaul assume that much more of it will pass through to workers.

The huge bill is the biggest rewrite of the tax code in three decades and was rushed through Congress with few of the hearings or government analysis that usually accompany such bills, so many groups are still trying to figure how it will affect different people, businesses and industries. The ITEP report is one of the few analyses at this point that makes estimates down to the state level.

Even that level will not necessarily be an accurate measure of what happens to any individual New Hampshire taxpayer, however. One source of possible confusion is that the new bill changes income brackets, which can affect tax rates; for example, a person making $190,000 is currently in the fourth tax bracket, taxed at 28 percent, but under the new bill would be shifted to the fifth tax bracket, which will be taxed at 32 percent.

(David Brooks can be reached at 369-3313 or dbrooks@cmonitor.com or on Twitter @GraniteGeek.)