THIS TAX DAY, some middle-class Americans may be tempted to celebrate. Under the new law approved in December, the bottom 60 percent of earners (those making less than $86,100 a year) are expected to receive 2018 tax cuts worth $407 on average.
But if you think you’ll be among those who owe Uncle Sam less under the new law, don’t get your party hat out yet. These tax cuts come at a high price.
For example, a typical preschool teacher (single, with no children) who makes $30,000 per year can expect a tax cut of $457. That’s enough to pay for a new refrigerator or several months of electricity bills. But other changes to the tax code could put this teacher’s job in jeopardy. State governments have been expanding pre-K programs in recent decades, but many of them are expected to have their education budgets squeezed because of the new tax law’s caps on state and local tax deductions.
In the meantime, the preschool teacher could have more hungry children in her classroom. The new tax law reduces incentives for charitable contributions, including for food banks and other services that early-childhood programs rely on. Donations to nonprofits are expected to drop by as much as $20 billion this year, according to the Tax Policy Center.
What about middle-class families who are making significantly more than the typical preschool teacher? Let’s look at a couple who run a plumbing business in Louisiana, with $135,000 in joint income. The Tax Policy Center estimates they’ll get a tax cut of $609 in 2018. But that same couple can expect to be slammed with a spike in their health insurance premiums of $1,900—triple their tax cut! That’s because the new tax law repealed a key part of the Affordable Care Act that requires individuals to have health coverage if they can afford it. This could lead to an estimated 13 million more people becoming uninsured and huge increases in premiums for those who remain in the individual market.
These are just some of the immediate effects of a tax law that overwhelmingly favors the wealthy and big corporations. In the longer term, the costs to working families will be much more painful.