The tax changes proposed by House Democrats this week would cut taxes for most Americans, at least in the short term, while hitting the highest-earning households with significant increases, the report said. estimates Released Tuesday by the bipartisan Congress Joint Committee on Taxation (JCT).
The Democratic plan, discussed again this week by the House Ways and Means Committee, calls for the restoration of a top marginal individual income tax rate of 39.6%, up from the current 37%. It also includes a host of other changes to individual, capital gains and corporate taxes that, according to the JCT, together would add more than $2 trillion to the U.S. Treasury over the next 10 years.
Congressional tax collectors estimated that households earning less than $200,000 a year would see lower tax bills through at least 2025, largely as a result of the expanded child tax credit, while those earning at least $1 million a year would face tax cuts. a 10.6% increase in federal taxes in 2023 and a 12.1% increase by 2025. The average federal tax rate for those top earners would rise from 30.2% now to 37.3% in 2023 and 38.1% in 2027.
The JCT estimates do not take into account the Democrats’ proposed increase in estate taxes, meaning the taxes on wealthy households would be even higher.
“We are taking an important step towards a level playing field,” House Ways and Means Committee Chair Richard Neal (D-MA) said Tuesday. “Nobody likes to raise taxes, but thanks to the strength of our economy, we can afford to do it.”
A problem for President Biden? The JCT estimates show that households earning between $200,000 and $500,000 per year will see an average tax increase of 0.3% in 2023. They also show that if lawmakers allow temporary changes to the tax code to go as planned, including the extension of child credit, households earning between $30,000 a year and $200,000 a year would see their taxes on average light by 2027. to rise. an average increase of 1.5%.
The House budget plan would extend the credit by four years and many Democrats want to make the new child tax credit permanent, but others have expressed concern about doing so. Notably, Senator Joe Manchin (D-WV) is pushing for a new requirement that parents work to qualify for the credit. “Tax credits are based on people having tax liabilities. I’m even willing to go as long as they have a W-2 and show they work,” he said Insider.
With the credit’s long-term fate unclear, the JCT estimates that considering its expiration after four years, it has opened the door for Republicans to argue that the plan violates President Biden’s pledge not to raise taxes on people earning less than $400,000 a year.
“You will hear today that President Biden will not break his promise to tax Americans who earn less than $400,000, but that is also not true,” said Texas Representative Kevin Brady, the top Republican on the Ways and Means Committee.
Republicans oppose the tax plan and have warned it will hurt the middle class as well as businesses large and small. Brady argued Tuesday, as many economists do, that the corporate tax hike would also be felt by individuals: “As you know, companies don’t pay taxes, they collect them. And that burden falls on their employees, on their customers, on the retirees whose retirement depends on their success, and it ends up on the communities in which they live.”