By Dwyer Gunn
Last December, President Trump signed into law the Tax Cuts and Jobs Act (TCJA), a fiercely debated rewrite of the U.S. tax code. Republicans promised the legislation would spur the kind of economic growth that would benefit Americans across the income spectrum; Democrats argued that the bill was an outrageous giveaway to the wealthy that would increase income inequality and ultimately harm middle-class Americans.
Signs suggest that corporations are spending the bulk of their resulting windfall on share buy-backs and higher dividends, maneuvers that largely benefit wealthy stockholders. In an analysis of company announcements for Bloomberg, Stephen Gandel estimated that 60 percent of the gains from tax reform are going to shareholders, and only 15 percent are going to employees (in the form of improved benefits, salaries and compensation).
On its surface, the TCJA may seem to have little to do with health outcomes (with the notable exception of the bill’s repeal of the tax penalty associated with the Affordable Care Act’s individual mandate). The legislation, however, is expected to have meaningful effects on income, income inequality and government spending, variables that likely will impact the health and well-being of many Americans in the long run. (Note that these changes go into effect in 2018, and won’t impact the taxes that are due to be filed this month.)
Who Stands to Lose
In the short-term, the TCJA is expected to provide a minor boost to the after-tax income of most Coloradans. According to the Institute on Taxation and Economic Policy (ITEP), the poorest 20 percent of Colorado residents will, on average, see their federal taxes decrease by about $160 in 2019 (though 3 percent of this group will actually see a tax hike in 2019). For state taxes in Colorado, however, some residents are actually expected to see an increase due to the elimination of certain deductions and exemptions.
Furthermore, because many of the law’s changes to the individual side of the tax code eventually expire, even the small gains disappear over time. By 2027, the poorest Coloradans will actually see their federal taxes increase by $60 annually on average. It’s also unclear if the tax cuts that a lot of lower- and middle-income families will see in 2019 are big enough to make a meaningful difference to their health.
Meanwhile, there are two other channels through which the law might negatively affect the health of low-income Coloradans in a more meaningful way: income inequality and federal spending.
ITEP estimates that the wealthiest 5 percent of Colorado taxpayers will receive approximately 52 percent of the TCJA’s total benefits over time. (Some of these wealthy taxpayers will also face higher state taxes due to the TCJA, somewhat reducing the windfall.) The poorest 20 percent, meanwhile, will receive only 1 percent of the gains.
With the gains disproportionately flowing to the wealthy, experts expect to see income inequality grow. William R. Cline of the Peterson Institute for International Economics estimated that the TCJA will increase income inequality in the U.S. by “an additional rise about one-fifth the size of the rise already experienced since 2007.” Ernie Tedeschi, a former economist for the U.S. Treasury, tweeted that “the bills exacerbate America’s already-rising path of inequality.”
The research on income inequality and health is still evolving—we don’t know how long income inequality has to last, or what exact shape it has to take, to affect health outcomes—but research does suggest that high levels of income inequality are likely detrimental to the health of low-income Americans.
In a 2015 study, researchers at the University of Wisconsin Population Research Institute found that people living in communities with greater income inequality exhibited shorter lifespans (on average) than those in more equal communities with the same average income. Some researchers also suggest that communities and societies dominated by the ultra-wealthy may be less likely to invest in the kinds of social services, or design and enforce the kinds of policies, that benefit lower- and middle-income families.
At the same time, one certain legacy of the TCJA is a soaring national debt. Analysts expect the legislation to increase the national debt by over $1 trillion—which many worry will drive future cuts to social programs that benefit low-income Americans.
It’s difficult to predict the nature and extent of these cuts. Joe Hanel of the Colorado Health Institute (CHI), a Colorado Trust grantee, is skeptical that cuts to Medicaid are forthcoming in the short-term, given the current political environment.
“There’s always a long-term concern with safety net programs about the continuing viability of federal funding, with our aging population and increasing cost of medical care,” Hanel said. “This law accelerates that, but, in my opinion, as I’m looking at Congress right now, I don’t see them doing anything of consequence on just about anything before the  election, and cuts to social programs will only get more difficult after the election.”
Others, however, are less optimistic about the security of safety net programs given the magnitude of the deficit increases expected under the TCJA. Esther Turcios, a policy analyst at the Colorado Fiscal Institute (also a Trust grantee), believes that cuts are likely and expects that they will be felt most acutely by low-income Coloradans and people of color.
“I think we can safely assume that cuts have to come from somewhere,” Turcios said. “Based on what we constantly hear nowadays about the [Trump] administration’s priorities… our assumption is that programs that predominately help low-income communities and minority communities are going to be targeted in the future.”
The Middle-Income Self-Employed
In 2019, middle-income Coloradans—those in the middle 20 percent of the income distribution, earning between approximately $46,000 and $71,000 a year—will see their taxes decrease by an average of $880. By 2027, they’ll see no gain or loss from the TCJA. However, the TCJA’s repeal of the fine for not getting insurance is expected to drive premiums in Colorado’s individual marketplace, which increased dramatically in 2018, even higher in 2019.
“The concern is that if some people who are healthy, or relatively healthy, were only buying insurance to comply with the law, they might not buy it,” explained CHI’s Hanel. “If only the sick are left in the market, that could drive up prices, which might drive even more healthy people out of the market.”
It’s too soon to predict how much premiums in Colorado will go up in 2019, but the Congressional Budget Office projected that the repeal of the individual mandate penalty will increase premiums in the individual market nationally by 10 percent in most years. Lower-income Coloradans (those earning less than 400 percent of the federal poverty level) who buy their insurance coverage in the nongroup market are protected from the premium increases. But anyone earning more than about $48,000 (for an individual) or $98,000 (for a family of four) will face higher premiums. In Colorado, an estimated 175,000 people get coverage through the state marketplace; approximately 75,000 are unsubsidized.
Immigrant Families and Communities
The legislation deals an additional blow to immigrant families and communities, above and beyond the possible future effects on federal spending.
The TCJA meaningfully expanded the Child Tax Credit (CTC), a tax credit for working families. Under previous law, families received a credit of about 15 percent on any earnings over $3,000, up to a $1,000 per-child maximum value. (The credit phased out at higher income levels.)
The credit was available to any taxpayer with an individual taxpayer identification number (ITIN), for any of their children with an ITIN. In practice, this meant that undocumented individuals—who lack Social Security numbers and thus must use ITINs to file taxes—could claim the credit for any of their children, even if those children were also undocumented.
The final version of the TCJA increased the maximum per-child value (to $2,000) and lowered the amount of money that workers must earn in order to begin receiving the credit (to $2,500). However, it also barred tax filers from claiming the CTC for children without a Social Security number.
Prior to the passage of the TCJA, an undocumented single mother with an undocumented child who earned $14,500 a year could have claimed a $1,000 tax credit; today, that single mother won’t receive this tax credit.
This provision of the law will harm both undocumented and mixed-status families with at least one undocumented child, of which there are many. An analysis conducted by the Center for American Progress and the University of Southern California’s Center for the Study of Immigrant Integration estimates that there are 130,958 children in Colorado with at least one unauthorized family member, and 276,589 people of all ages with at least one unauthorized family member.
Yet history indicates that the effects may extend beyond even mixed-status families, to immigrant communities at large. Meghan Condon, PhD, is a professor of public policy at DePaul University who has studied how the welfare reforms of 1996—which gave states a large amount of latitude to bar legal immigrants from accessing the social safety net—affected immigrant communities. In a 2016 paper, Condon and her coauthors found that high school graduation rates for Latino youths were higher in states that allowed legal immigrants to access welfare than in states that did not, even among youths not directly affected by the policy changes.
“What we found is that when the government makes these decisions about eligibility for one immigrant group, those effects are going to spill over within high-immigrant communities,” Condon said. “The distinctions between different immigrant statuses are complex—people think it’s easy to target just immigrants, or just undocumented immigrants, but it’s not.”
Who Stands to Gain
The TCJA makes a number of changes that benefit wealthy Coloradans: it temporarily raises the threshold for the alternative minimum tax and the estate tax, and includes a tax break for families with children in private school. ITEP estimates that the wealthiest 1 percent of Coloradans will see their taxes go down by, on average, over $62,000 in 2019 and over $6,000 in 2027. Overall, the wealthiest 1 percent of Coloradans will enjoy 26 percent of the gains from the TCJA.
Income gains aside, it’s actually not clear if the health of this demographic will be improved by the TCJA. While researchers have consistently found that people in higher income groups have better health, at some point the law of diminishing returns does seem to apply.
In a 2011 study, for example, researchers studied the relationship between income and mortality in the United States in the 1970s, 1980s and 1990s. They concluded that “[a]dditional income makes very little difference in risk of death beyond a certain level of income, but makes a great deal of difference below that level.”