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The Senate Democrats’ package of climate change, health care, drug pricing and tax measures announced last week has sparked debate among supporters and opponents as to whether the legislation violates the law. whether a President has committed or not. Joe Biden has done since his presidential campaign, arrive no tax increase for households earning less than $400,000 a year.
The answer is not quite as simple as it seems.
“The interesting thing about this is, you can get a different answer depending on who you ask,” said John Buhl, an analyst at the Urban-Brookings Tax Policy Center.
The White House used $400,000 as a rough line for the rich versus those with lower and middle incomes. That income threshold is equivalent to about Top 1% to 2% of American taxpayers.
new invoice, Inflation Reduction Act, does not directly raise taxes on households below that level, according to tax experts. In other words, the law won’t increase taxpayers’ annual tax returns if their income is less than $400,000, experts say.
However, some aspects of the legislation could have a negative impact downstream – an indirect tax, experts say. This “indirect” element is where opponents seem to have channeled their fury.
The Act – brokered by Senate Majority Leader Chuck Schumer, DN.Y. and Senator Joe Manchin, DW.Va., who has been a key focus holder – will invest about $485 billion in climate and health care measures through 2031, according to the Office of the Treasury. book of Congress analysis release Wednesday.
Generally, that spending will be in the form of tax reduction and discount for households to buy electric vehicles and make their homes more energy efficient, and a three-year extension to current Affordable Care Act benefits for health insurance .
The bill would also raise about $790 billion through tax measures, to revolutionize on prescription drug prices and methane emissions fees, according to the Congressional Budget Office. Taxes make up the majority — $450 billion — of revenue.
Specifically, the law will provide more resources for the IRS to enforce tax fraud and will adjust its “carrying interest” rules for taxpayers earning more than $400,000. The change to the differential interest rules – which allowed some private equity and other investors to pay a favorable tax rate on profits – may be dead, however, after when Democratic Party leaders agreed to remove it to win support from Senator Kyrsten Sinema, D-AZ.
Those factors aren’t controversial in regards to tax commitments – they don’t add to the annual tax bills that middle- and low-income earners owe, experts say.
The Inflation Reduction Act would also implement a 15% corporate tax rate, paid on income that large companies report to shareholders. Experts say this is where “indirect” taxes can come into play. For example, a company with a higher tax bill could pass those additional costs on to employees, possibly in the form of lower pay increases or reduced corporate profits that could hurt a 401(k). ) and other investors who own part of the company in a mutual fund.
The current corporate tax rate is 21% but some companies can reduce their effective tax rate and thus offset their bill.
As a result of the policy, people earning less than $200,000 will have to pay nearly $17 billion in additional taxes combined by 2023, according to the Joint Committee on Taxation. analysis published July 29. That combined tax burden falls to about $2 billion by 2031, according to the JCT, an independent scorer for Congress.
“The Democrats’ approach to tax reform means raising taxes for low- and middle-income Americans,” said Senator Mike Crapo, R-Idaho, senior member of the Finance Committee. , speak of analysis.
However, the JCT analysis does not provide a complete picture, according to experts. That’s because it doesn’t take into account the benefits of reduced consumer taxes, subsidized health insurance premiums and lower prescription drug costs, according to the Responsible Federal Budget Committee.
Experts argue that observers looking at indirect costs should also consider these financial benefits.
“The selective presentation by some of the distributive effects of this measure ignores the benefits to middle-class families from deficit reduction, from reduced prescription drug prices, and from more affordable energy.” , a group of five former Treasury secretaries of both Democratic and Republican administrations Written Wednesday.
$64 billion of the Affordable Care Act’s total subsidies alone would be “more than enough to counter the net tax increase of less than $400,000 in the JCT study,” according to the Federal Budget Committee. responsible, also estimates that Americans will save $300 billion in prescription drug costs and premiums.
The combined policies will provide a net tax cut for Americans by 2027, the group said.
Furthermore, setting a minimum corporate tax rate should not be seen as an “extra” tax, but a “recovery of lost revenue to avoid taxes and terms that favor the wealthiest.” “, the former Treasury secretaries argued. They are Timothy Geithner, Jacob Lew, Henry Paulson Jr., Robert Rubin and Lawrence Summers.
However, according to Buhl of the Tax Policy Center, there are other issues to consider.
For example, to what extent do companies pass their tax bills on to employees versus shareholders? Economists differ on this point, says Buhl. And what about companies with lots of excess cash? Can that cash buffer keep a company from levying indirect taxes on its employees?
“You can end up going down these rabbit holes forever,” says Buhl. “That’s just one of the fun parts of the tax commitment,” he added.