Democrats’ roughly $2 trillion tax and spending package would spell a tax cut for most households not in the top 1 percent of earners in 2022, an analysis from the Tax Policy Center found.
The think tank — a joint project of the Urban Institute and Brookings Institution — said Thursday that tax cuts would be widespread in the first year under the bill, but taxes would on average rise very slightly for many middle- and upper-income Americans in 2023 and climb more widely in 2026.
The findings suggest potential issues later in the decade running up against President Joe Biden’s pledge not to raise taxes on anyone making less than $400,000, a promise that Democrats have aimed to keep while drafting their filibuster-proof budget reconciliation package implementing social safety net and climate priorities.
In 2022, the TPC estimated that the lowest fifth of earners would see a 4.2 percent tax cut on average, while the top 0.1 percent earning over $4 million would see taxes go up by 4.1 percent.
Most households earning less than $400,000 would see tax cuts or little change in their tax bills, though significant chunks would still see slight tax increases when corporate provisions are factored in.
For example, in 2022 about 27 percent of households earning between $75,000 and $100,000 would see their tax bills rise by $80 on average; 30 percent of households making between $100,000 and $200,000 would see an average $120 tax increase; and 28 percent of those in the $200,000 to $500,000 range would see an average hit of about $230.
One year and done?
Some of the benefits are from the one-year extension of Democrats’ pandemic expansions of the child tax credit, a benefit to help families with child costs, and earned income tax credits for lower-income adults without kids. But pressure from centrists to cut spending meant an earlier end to those expansions than Democrats originally planned, meaning tax increases for many starting in 2023 if the measures aren't extended.
The child tax credit would permanently become fully refundable under the current plan, meaning those who owe less than its value in federal taxes still get the full amount. That would help preserve some tax benefits for lower earners through the decade.
Still, the expiration of the more generous child tax credit for individuals making less than $75,000 and married couples filing jointly making less than $150,000 would change the picture in 2023, TPC found, along with the onset of a 15 percent minimum tax on corporate earnings reported to shareholders for companies with over $1 billion in profits. The TPC calculated the impact of corporate taxes through how they’d hit investors and workers.
In all, the second year under the bill, the middle fifth of U.S. households would see a 0.1 percent tax increase on average, and an average increase of $120. Tax increases for the next-highest rung of earners would be similarly slight. The top 1 percent would see a 2.7 percent tax increase, on average seeing taxes go up by more than $80,000.
In a twist, the TPC found that those in the 95th to 99th percentile for income — or households earning up to about $885,000 — would see taxes drop on average. That’s likely thanks to Democrats’ plan to increase the cap on deducting state and local taxes from $10,000 to $80,000, a benefit that studies show would accrue largely to wealthier Americans.
The very richest households — those earning at least $10 million annually — would get hit with a new surtax that would offset that tax cut, but some high earners would get the SALT benefit without facing the extra charge.
Households earning above $1 million in 2022 would still face, on average, a roughly $68,000 tax increase, the analysis found. But within that group nearly two-thirds would actually receive tax cuts worth around $16,760, with the remainder seeing steep tax increases of more than $228,000 each.
In 2026, individual income tax provisions from Republicans’ 2017 tax overhaul would expire, shifting impacts again. The $80,000 SALT cap would also remain in place under Democrats’ current plan. It’s set to expire after 2025 under current law, but Democrats are looking at extending it to pay for the cap lift in the nearer term. It would return to $10,000 in the final year of the budget window, 2031, boosting revenue then.
The extension of the SALT cap would mean the highest-earning households would pay more in taxes in 2026, TPC found, but others would see tax bills go up too. Every income group aside from those making $28,000 or less would pay higher taxes on average in 2026 than under current law, though increases for middle-income earners would be slight, according to the analysis.
When counting only direct taxes — namely individual income and payroll tax provisions — no one making less than half a million dollars would pay higher taxes in 2026.