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• An analysis by Congress’ Joint Committee on Taxation found that every income group would lose ground from the bill’s tax changes, although by a modest amount — approximately 1%.
• However, this analysis didn’t factor in subsidies for energy efficiency and clean energy, the continuation of expiring subsidies under the Affordable Care Act, and lower drug prices because of Medicare negotiations. Independent experts expect these benefits to cancel out, or reverse, any negative tax impacts.
• The only actual tax increases in the bill are levied directly on very large corporations and high-earning money managers. This means that any impact on ordinary Americans would come from secondary effects, which are difficult to measure.
Soon after Senate Democrats Joe Manchin of West Virginia and Chuck Schumer of New York announced an agreement on a bill that offered a pared-down version of President Joe Biden’s remaining policy agenda, Republicans cast the legislation as a big tax hike.
The Wall Street Journal’s conservative editorial page pointed to a study by Congress’ Joint Committee on Taxation that found that "average tax rates will increase for nearly every income category in 2023 under the bill. This gives the lie to Democratic claims that no one earning under $400,000 will pay more taxes under the bill, a promise Mr. Biden also made in his campaign. The reality is that the Schumer-Manchin bill is a tax increase on nearly every American."
GOP officeholders and candidates echoed this line of attack on the bill.
Adam Laxalt, the Republican challenging Sen. Catherine Cortez Masto, D-Nev., for a U.S. Senate seat, tweeted July 30 that the bill will "increase taxes on millions of Americans across every income bracket."
Laxalt communications director Courtney Holland confirmed that the tweet was referring to the same Joint Committee on Taxation analysis. However, the committee’s analysis tells only part of the story because it looks at the burden of tax increases under the bill without looking at other elements of the legislation intended to negate the added tax burdens.
The bill Manchin and Schumer announced, which includes both new spending and new taxation, can pass the Senate with only Democratic votes in the evenly divided Senate because of a procedural status known as "reconciliation." The tax provisions are aimed at wealthy money managers and big companies.
One of the two big tax elements would significantly scale back a tax code provision known as "carried interest," which lets money managers pay taxes on much of their income at capital-gains rates, which are lower than the regular rates for personal income.
The other provision would make it harder for companies reporting at least $1 billion in profits to escape corporate income taxes. Such companies would have to pay at least 15% in such taxes, which many currently do not.
On the spending side, the bill would offer a mix of programs to curb climate change. It is far more limited than the Green New Deal, a climate-change policy blueprint supported by progressive Democrats that never advanced in either chamber of Congress.
The bill would also allow Medicare for the first time to negotiate prices with drugmakers and extend for three years certain subsidies to Americans who get their health insurance under the Affordable Care Act. The bill would also allocate additional funding to the Internal Revenue Service to improve tax compliance; this provision is expected to bring back to the Treasury an amount greater than the added spending.
Here are some aspects of the bill that Laxalt and others didn’t mention.
The critics have a point in saying that the Joint Committee on Taxation analysis found higher taxes, on average, in every income bracket.
Overall, the federal tax burden for all Americans would rise by 1.4%. For those earning between $30,000 and $100,000, the increase would be less than 1%; for those earning less or more, the increase would exceed 1%. (An individual household’s tax burden may go up or down; the 1.4% figure is an average.)
"I think it is fair to say this tax plan impacts these households," said Kyle Pomerleau, a tax specialist at the American Enterprise Institute.
But there’s an important caveat: The joint committee looked only at the tax side of the bill, not at spending provisions that could cancel out those tax increases.
The study "is informative but not comprehensive," wrote the Committee for a Responsible Federal Budget, a group that favors deficit reduction and has been skeptical of many of Biden’s legislative efforts, citing their cost. "In particular, it’s important to note that the (bill) does not raise taxes on those making less than $400,000 per year. It will indirectly affect those households in a number of ways, but even then, the net effect is likely to be to increase their real disposable income."
For instance, the bill’s climate provisions would offer tax credits to people who buy electric vehicles and implement energy-efficiency improvements, and to companies that make renewable energy equipment.
Of even greater importance to Americans on the lower end of the income spectrum are subsidies for insurance under the Affordable Care Act. The subsidies would be extended for three years rather than ending by the close of this year.
Also important for a broad range of Americans would be the drug-negotiation provision for Medicare, although the impact might take longer to land than for the other provisions.
"Before relitigating the debate over President Biden’s pledge not to raise taxes on households making less than $400,000 a year, it’s worth keeping these missing pieces in mind," wrote William G. Gale and John Buhl for the Urban Institute-Brookings Institution Tax Policy Center.
The Committee for a Responsible Federal Budget concluded that the $64 billion in health insurance subsidies alone "would be more than enough" to erase the tax increases for people earning less than $400,000 under the Joint Commission on Taxation’s analysis. The group said the bill overall would provide a net tax cut starting in 2027, once higher tax compliance and lower drug costs begin to make a significant impact.
The bill’s effects on average taxpayers will not be felt in the same way as income and payroll taxes. Rather, the rise in tax burdens stems from the increase in corporate taxes. Corporations tend to pass the cost of these tax increases to regular people through lower returns for investors and lower wages for workers.
The Tax Policy Center and other groups that study tax policy use mathematical models to project how changes in the tax code, including corporate taxes, would affect taxpayers of varying income levels.
In the Tax Policy Center’s model, 80% of the corporate tax increase would be borne by corporate shareholders. The remaining 20% would be borne by workers through reduced wages. This is close to the breakdowns used by the Joint Committee on Taxation.
Some households could be hit by both impacts. For instance, members of a household might see lower returns on the stock investments in their 401(k) retirement plans and lower wages.
But because these effects don’t show up on a person’s tax returns or receipts for gasoline, some experts say it’s unfair to call them a "tax hike."
Five former Treasury secretaries — Hank Paulson (who served under President George W. Bush), Robert Rubin and Larry Summers (who served under President Bill Clinton), and Tim Geithner and Jacob Lew (who served under President Barack Obama) — signed a statement in which they supported the bill and rejected the argument that its provisions represent a tax increase.
"Taxes due or paid will not increase for any family making less than $400,000 a year," they wrote. "And the extra taxes levied on corporations do not reflect increases in the corporate tax rate, but rather the reclaiming of revenue lost to tax avoidance and provisions benefitting the most affluent."
Laxalt said the Democratic bill would "increase taxes on millions of Americans across every income bracket."
An analysis by Congress’ Joint Committee on Taxation did find that every income group would lose ground from the bill’s tax changes — approximately 1%.
However, this analysis didn’t factor in the ways ordinary Americans would gain from the bill, including subsidies for energy efficiency and clean energy, the continuation of expiring subsidies under the Affordable Care Act and lower drug prices because of Medicare negotiations. Independent experts expect these benefits to cancel out, or reverse, the bill’s tax impacts.
Characterizing the bill as a blanket tax hike obscures how the prescribed taxes would be levied directly on very large corporations and high-earning money managers. The impact on ordinary Americans comes from difficult-to-measure secondary effects.
The statement is partially accurate but leaves out important details, so we rate it Half True.
Adam Laxalt, tweet, July 30, 2022
Joint Committee on Taxation, analysis of Democratic bill, accessed Aug. 1, 2022
Urban Institute-Brookings Institution Tax Policy Center, "What You Need To Know About The Manchin-Schumer Climate and Tax Compromise," July 28, 2022
Urban Institute-Brookings Institution Tax Policy Center, "Putting JCT’s Score of the Inflation Reduction Act Into Context," Aug. 2, 2022
Committee for a Responsible Federal Budget, memo, Aug. 2, 2022
New York Times, "Analysis Deems Biden’s Climate and Tax Bill Fiscally Responsible," Aug. 2, 2022
Catheine Rampell, "Ignore GOP scaremongering about Dems’ tax plans. They’re worth doing" (Washington Post op-ed), Aug. 1, 2022
Fox News, "Wall Street Journal editorial board pens scathing op-ed on the 'Schumer-Manchin tax increase,'" Aug. 1, 2022
Business Insider, "Five former treasury secretaries — including one of George W. Bush's — throw their support behind Manchin's inflation-fighting bill," Aug. 3, 2022
New York magazine, "Republicans Say Biden’s Plan Taxes the Middle Class. That’s False," Aug. 1, 2022
PolitiFact, "Would Joe Biden’s proposals raise taxes on 60% of Americans? Not directly," June 30, 2021
Email interview with Kim McIntyre, director of media relations for the Committee for a Responsible Federal Budget, Aug. 2, 2022
Email interview with John Buhl, senior communications manager with the Urban Institute-Brookings Institution Tax Policy Center, Aug. 1, 2022
Email interview with Kyle Pomerleau, tax specialist at the American Enterprise Institute, Aug. 1, 2022
Email interview with Courtney Holland, communications director to Adam Laxalt, Aug. 1, 2022
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