Legislation

Fact check: Will taxes go up for the middle class under the new Democratic plan?



WASHINGTON — Republicans are warning people: The new Democratic-written tax and spending law is going to mean a bigger tax burden, whether you make $40,000 or $400,000.

Independent analysts find that’s just not so.

“It’s important to note that the (law) does NOT raise taxes on those making less than $400,000 per year,’’ said a memo to readers from the Committee for a Responsible Federal Budget.

The bill’s impact, said the Tax Policy Center, would be “mostly falling on the top 1 percent of taxpayers.”

And the Tax Foundation’s Alex Muresianu found “there isn’t a net tax increase except possibly in the long run,” which he defined as early in the next decade.

President Joe Biden last week signed into law the”Inflation Reduction Act,” which includes health care premium subsidies, consumer savings on energy-efficient systems and devices and some corporate tax increases..

Biden campaigned in 2020 on a pledge not to raise taxes on anyone making $400,000 or less.

“Nobody making under 400,000 bucks would have their taxes raised, period, bingo,” he told CNBC’s “Squawk Box” that year.

Republicans see more taxes

Yet many Republicans have made the prospect of a bigger tax burden on those very people a big political talking point during and after the debate on the new law.

House Minority Leader Kevin McCarthy, R-Calif. , talked about its “crushing new taxes.”

Sen. Mike Crapo, R-Idaho, has been specific.

“The Administration has been very careful to say that the ‘individual income tax rate’ would not change for anyone making less than $400,000 per year, yet everyone knows that the corporate tax burden falls on workers and consumers, as well as owners,” said Crapo, top Republican on the tax-writing Senate Finance Committee,

The senator cited an early August analysis by the committee that did show substantial tax increases for consumers at most income levels. But the Committee for a Responsible Federal Budget noted the analysis “excludes the benefits of consumer tax rebates, health premium subsidies, and lower prescription drug costs.”

The challenge in estimating tax burdens in such sweeping legislation is that any analysis requires assumptions about taxpayer behavior. Will people use the energy credits? How much if any of the corporate tax increases will impact shareholders and workers? How much will the extended health care subsidies help taxpayers save money?

Figuring out taxes

To evaluate the impact of the law, analysts use economic models, largely based on past taxpayer behavior, that provide empirical data.

The Tax Policy Center found the bill’s impact would be “highly progressive.’‘ It estimated that taxes would increase by $6,060 next year, or 0.3% of after-tax income, for households in the top 1% of incomes, or those making more than about $1 million.

Those in the top 0.1%, with incomes of more than $4 million, would see taxes go up by $41,580, or 0.4%.

For all other income levels, the impact would be negligible.

There are no guarantees. The bill aims to raise billions from higher corporate taxes.

The Tax Policy Center assumes that about 80% of the corporate tax increases are felt by shareholders and 20% affects workers in the form of lower wages or smaller wage increases.

Crapo cited a 2020 study by the nonpartisan National Bureau of Economic Research that showed approximately 31% of corporate taxes are passed on to consumers.

He also noted that a letter to him and Rep. Kevin Brady, R-Texas, last year from Congress’ bipartisan Joint Committee on Taxation said that “any increase in business taxes will fall on some taxpayers with income below $400,000 as either owners of capital or wage earners.”

Another variable involves the energy credits. If a family of four with a qualifying income in the Sacramento area took advantage of every break, they could save $22,020 over the next few years. But that assumes they would be buying a new as well as a used electric car, a heat pump air conditioning/heating system, a stove and so on.

So while it’s nearly impossible to pinpoint how much a household with an income of $400,000 or less might save, this much is apparent, said the Committee for a Responsible Federal Budget: The new law “ 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.”


©2022 McClatchy Washington Bureau. Visit at mcclatchydc.com. Distributed by Tribune Content Agency, LLC.




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