Moneybox

An Extremely Clear Explanation of Why Americans Haven’t Noticed Their Tax Cuts

WASHINGTON, DC - MARCH 20: Senate Majority Leader Mitch McConnell speaks with reporters following the weekly policy luncheons on Capitol Hill March 20, 2018 in Washington, DC. Congress faces a looming deadline to avoid another government shutdown. (Photo by Aaron P. Bernstein/Getty Images)
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Aaron P. Bernstein/Getty Images

According to a recent analysis by the nonpartisan Tax Policy Center, approximately two-thirds of Americans should have received a direct tax cut thanks to the bill Republicans passed late last year. Yet, polling suggests that only about a quarter of adults have noticed an uptick in their take-home pay. What gives?

Previously, I guessed that the problem was likely pretty simple: When dribbled out across a whole year, the tax cuts were almost certainly too small for most workers to notice in their paychecks. Now, former Treasury economist Ernie Tedeschi, who now heads fiscal policy analysis for Evercore ISI, has produced a lovely graph illustrating why that’s probably the case. After running a model from the Open Source Policy Center, he concludes that 75 percent of families would get less than $50 extra every two weeks if they adjusted their withholding perfectly. A little more than half would get less than $20 extra.

That’s just not enough cash to register for many workers. People’s paychecks change month-to-month and year-to-year. Their hours are erratic. They get cost-of-living adjustments. An extra $100 a month might make a meaningful difference for a middle class household’s wellbeing. But it may not be obvious that the money is there, or that it came courtesy of the Trump administration. As far as most Americans are concerned, Republicans passed an invisible tax cut.