So, you got a tax cut. Now what? Get answers with the CNN tax calculator
So, how are people planning to spend their windfalls, which the Joint Tax Committee says will be worth $264 billion over the next two years?
It’s an important question for the economy. Companies determine who benefits from tax cuts by whether they choose to put their extra cash into payouts to shareholders, wages and hires, or new investment. But spending by individuals accounts for more than two thirds of gross domestic product, so their decisions are arguably more important.
We know a few things from past tax cuts.
One, individuals don’t always notice the change — it’s just one of many factors that influence the amount of money in their pockets, including wages, rent, the price of gas, the cost of college. President Barack Obama passed a tax credit as part of the 2009 stimulus bill worth $400 per person, for example, but polls showed later that few people realized it.
Two, we know that people spend tax cuts differently depending on how much money they make. Economic theory generally says that lower-income people are more likely to spend any extra cash they get, while upper-income people are already spending as much as they want or need to spend, so they just sit on the money.
University of Chicago economist Owen Zidar found in a recent study that the theory holds: Places with a higher concentration of wealthy people saw less of an economic boost from tax cuts in the last 30 years than places with more poorer people.
By that logic, this tax cut isn’t structured for growth. According to the Tax Policy Center’s calculations, people in the bottom 90% of the income spectrum will see less than a 2% tax cut in 2018, while people in the top 5% see about a 4% cut.