The bulk of tax increases included in proposals from the House Ways and Means Committee to pay for Democrats’ planned $3.5 trillion budget reconciliation package would fall on households making $1 million or more, according to an estimate Tuesday from the Joint Committee on Taxation.
The nonpartisan tax scorekeepers found Ways and Means’ provisions would lead to double-digit percentage tax increases for millionaires and up for much of the next decade, while taxes could go up by as much as 2 percent on households making between $200,000 and $500,000.
The analysis measures the total change in federal taxes resulting from the package, estimated to cut taxes by about $918 billion on net over a decade, despite gross tax increases on wealthier households, large corporations, tobacco products and more totaling nearly $2.2 trillion. The JCT has found that corporate taxes fall on lower-income workers to some extent, which factors into the analysis.
President Joe Biden committed not to raise taxes on anyone making less than $400,000 per year, and Democrats in Congress have reiterated that pledge, writing it into instructions for the filibuster-proof reconciliation bill. JCT’s analysis suggests there could be slightly higher taxes for those within that range at various points in the decade under Ways and Means’ proposal, although it excluded some pieces of the plan.
Some of the Ways and Means provisions could reduce the overall burden on households up and down the income scale. For example, the analysis doesn’t factor in tax credits for electric vehicle purchases that don’t begin to phase out until $800,000 in household income. It also doesn’t incorporate a provision that would make permanent tax credits to purchase health insurance that cap expenses at 8.5 percent of income for households making over 400 percent of the poverty level, which is $106,000 for a family of four in 2021.
On the other hand, the analysis uses a more expansive definition of income than Democrats have used thus far to try to abide by Biden’s $400,000 pledge, which could make the income categories look higher in the JCT tables.
The Ways and Means bill uses taxable income, or income after various deductions and credits. But JCT starts with adjusted gross income, which only excludes certain “above the line” deductions, such as retirement contributions and educator expenses, and then tacks on a much broader array of benefits, like employer contributions for payroll taxes and health insurance.
The analysis also doesn’t consider policies that top Democrats have pledged to include in a final bill that’s signed by the president, such as removing a $10,000 annual cap on state and local tax deductions. The JCT has estimated that more than half of the benefit from repealing the cap would flow to households making more than $1 million, and taxpayers in the $200,000 to $500,000 range could get tax breaks worth a few thousand dollars, on average.
With those caveats in mind, in 2023, taxes would drop for everyone making up to $200,000 but climb by 0.3 percent for those between that income level and $500,000, the JCT said. Households making $1 million or more would see a 10.6 percent rise.
Child tax credit changes
In the middle of the decade, in 2027, that changes. Taxes would still drop for people making less than $30,000 but would tick up by less than 1 percent for people making from $30,000 to $50,000, and then by an amount from 1 percent to 2.6 percent for those making more, up to $1 million, where the rise in taxes would remain above 10 percent.
That’s likely because a $556 billion expansion of the child tax credit would expire after 2025, leaving the benefit smaller and available to fewer people. It would remain fully payable even if people owe less than its value in federal taxes, however, which would help the lowest-income earners, who consistently see a large drop.
Through the rest of the decade, people making less than $400,000 could see their taxes go up slightly, never by more than 1.5 percent, according to JCT’s analysis.
Major provisions from Ways and Means include a 39.6 percent top individual income tax rate, an all-in levy of 28.8 percent on capital gains, a top corporate rate of 26.5 percent and changes for pass-through businesses such as partnerships that make more than $400,000. A 3 percent surtax for people making more than $5 million would also push individual income and capital gains rates higher.
The analysis came as the panel debated Tuesday the provisions to boost benefits for people with children and low-income earners, create and expand clean energy incentives, raise taxes on corporations and high-income earners, and more.