Across the Nation

How Middle-Class Tax Cuts May Impact the 2016 Elections

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Benjamin Franklin once said, “In this world nothing can be said to be certain, except death and taxes.” In both red and blue states, however, the certainty of high taxes is being challenged. For these states, legislation has been proposed or enacted to create middle-class tax cuts to reduce the tax burden on American families. But with 2016 elections around the corner, such legislation could also have a sway on voter decisions.

Recognizing a Need for Action

This shift in populism reflects recognition that most Americans have failed to fully recover from the Great Recession. According to The Pew Charitable Trusts, only the District of Columbia saw an increase in its labor force participation statistics from 2008 to 2013, with four states — including early primary state Nevada — recording decreases in excess of four percent. During the same period, 47 states reported drops in median household income. The number of Americans that feel that they are being pushed out of the middle class is on the rise, turning the topic of the wealth gap into a potential election question.

Such a question could also build up a conversation around high individual state income taxes and the resulting tax breaks that could vastly benefit middle- to lower-income families. Among the early primary states, Iowa in particular, income taxes are an increasing burden. Iowa has one of the highest rates for personal income taxes (8.98 percent) in the nation, following only California (13 percent), Hawaii (11 percent), and Oregon (9.9 percent).

Different Approaches

According to The Pew Charitable Trusts, the differing red vs. blue approaches are clear: “Proposals in Republican-dominated states, such as Arkansas, Ohio and Maine (where Democrats control the House), focus on lowering income tax rates, either for everybody or specifically for low- and middle-income taxpayers. In New York and Minnesota, where Democrats hold more sway, the idea is to boost low- and middle-income households through targeted property tax cuts or child care income tax credits, respectively.”

The differing solutions continue. The Pew goes on to mention that other states, such as Michigan, Massachusetts, and California, have suggested either the establishment of a state version of the federal earned income tax credit, which offers a wage subsidy to low-income households, or the expansion of already existing programs. In short, there is no single solution.

Taxpayer Relief

In theory, a well-enacted tax cut re-energizes an economy by allowing taxpayers to keep more post-tax dollars, which should provoke spending. The idea is that this re-invigoration of the tax base would be done without adding social program spending, thus offering taxpayer relief that could win bipartisan support.

While the effectiveness of these tax cuts has yet to be ascertained, their introduction may be enough to rally voter enthusiasm for the upcoming election. Only time will tell for how long this populist trend will last, but for the time being, this move has shifted political momentum toward the fate of the middle class for the first time in recent memory.