The rich get richer: Trump's tax cuts have boosted Texas and its high earners
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The rich get richer: Trump's tax cuts have boosted Texas and its high earners

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President Donald Trump celebrates the tax bill's passage with members of the House and Senate on Wednesday, Dec. 20, 2017 during an event on the South Portico of the White House in Washington, D.C.

President Donald Trump celebrates the tax bill's passage with members of the House and Senate on Wednesday, Dec. 20, 2017 during an event on the South Portico of the White House in Washington, D.C. (Olivier Douliery/Abaca Press/TNS)

President Donald Trump's tax cuts have never been popular, in part because so many benefits accrue to the well-off.

Turns out that big corporations and wealthy individuals weren't the only winners. Texas, along with some other thriving states, got a bigger boost that added more momentum to an already strong economy. And the highest-paid in Texas - those earning over $500,000 - had a much bigger upside than high earners in the rest of the U.S.

In other words, the rich got richer, especially in Texas.

That's not surprising, but the size of the impact is notable. It also means that Texas has even more advantages to lure potential employers and workers.

The tax cuts, which were approved by a Republican Congress two years ago, reduced total tax liabilities in the state by 2.1% in 2018. That was significantly more than the 1.4% average tax cut for the rest of the U.S., according to a recent report from the Federal Reserve Bank of Dallas.

For Texas households, the average tax savings totaled nearly $1,400 compared with almost $1,000 for the rest of the U.S.

"The more-generous tax break in Texas ... likely played an important role in Texas' 2018 stronger job growth," wrote Anil Kumar, a senior economist at the Dallas Fed.

Texas added almost 300,000 jobs in 2018, leading the nation and the next-closest states, California and Florida. The tax cuts likely boosted the state's job growth by 0.3 percentage points, Kumar wrote.

While the cuts are applied uniformly, the gains by state depended on several factors. The tax law nearly doubled the standard deduction, and Texas has a higher share of residents taking that deduction - 76% here vs. 70% for the U.S., Kumar said.

The law also capped deductions for state and local taxes and mortgage interest, which affected a greater share of filers outside of Texas. High earners in California and New York really felt the changes, he said.

The upshot is that more residents in Texas gained more benefits than most. Texas ranked ninth among the 50 states in tax savings as a share of income and second among the 10 most populous states, according to the Dallas Fed study.

"The reason Texas got such a boost in growth is because it got a bigger stimulus," Kumar said in a phone interview.

Among Texans earning over $500,000 in 2018, the average tax savings topped 3% of income, the study said. That was two to three times higher than the average savings for similar earners in the U.S., and it was significantly higher than the average tax cut for the middle-class.

"The high-income groups in Texas were hurt much less by the limitations on deductions," Kumar said.

Housing prices and local tax burdens tend to be lower in Texas than in many large states, especially on the East and West Coasts. Historically, those cost advantages have helped attract more corporate relocations and expansions, and they helped persuade more workers to come here, too.

The tax cuts amplify Texas' edge, especially among higher-paid employees and entrepreneurs.

The Dallas Fed study focused on the short-term impact of the tax cuts, but much of the criticism of the law centers on its long-term effects.

While advocates had predicted the tax cuts would spur enough economic growth to cover their costs, they've contributed to major increases in the deficit and national debt.

Over a decade, the costs of the Tax Cuts and Jobs Act will approach $2 trillion, including interest, according to estimates from the Committee for a Responsible Federal Budget, a nonpartisan group advocating for fiscal responsibility.

The tax bill accomplished many desirable things, said Maya MacGuineas, president of the committee. It brought down corporate tax rates, making business more competitive, and made "courageous" reforms to limit deductions for state and local taxes and mortgage debt.

But the shortcomings of the law well outweigh the benefits, she wrote in an October post, because it makes the debt worse and harder to fix.

"That has negative effects on our overall economy and well-being," MacGuineas said in a phone interview.

People need to recognize the trade-offs, she said, "or they're missing a big half of the picture."

Congress didn't reduce spending to match the lower revenue from the tax cuts. Instead, it approved large budgets that added trillions more to the debt.

Almost half of Americans disapproved of the tax cuts in a survey last March, according to the Pew Research Center. But opinions were split along political lines, with Democrats widely opposed and most Republicans approving of the law.

That split will make it difficult to address reforms in health and retirement programs. And if some believed that higher deficits would lead to a "starve the beast" strategy to cut spending, "that calculation certainly backfired," MacGuineas wrote.

"Tax cuts appear to have broken the dam rather than starved even a puny amount of the beast," she said.

Visit The Dallas Morning News at www.dallasnews.com

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