The nonpartisan Joint Committee on Taxation (JCT) is out with a new analysis on the impact various tax and spending proposals from the House Ways and Means Committee -- meant to support President Biden’s Build Back Better agenda -- will have on taxpayers across the income spectrum, from low-income taxpayers to the richest Americans. One important takeaway is that while middle-class and some low-income taxpayers may get major tax cuts in the first few years of the legislation, those benefits fade away and turn to tax hikes for many taxpayers by 2027.
JCT’s analysis examines the distributional impacts of most provisions[1] in the massive Ways and Means legislation, from the impacts on taxpayers making between $0 and $10,000 to the impacts on taxpayers making $1 million or more. In 2023, most taxpayers receive a net tax cut:
JCT Distributional Analysis, 2023 | |||||
Income Category | Number of Taxpayers | Current law, 2023 (billions) | Proposal, 2023 (billions) | Difference (billions) | Difference per taxpayer |
$0-$10,000 | 21,164,012 | $3.9 | $(6.1) | $(10.0) | $(472.50) |
$10,000-$20,000 | 21,641,423 | $(1.3) | $(26.0) | $(24.7) | $(1,141.33) |
$20,000-$30,000 | 18,595,040 | $21.4 | $2.7 | $(18.7) | $(1,005.64) |
$30,000-$40,000 | 15,510,580 | $48.3 | $36.6 | $(11.7) | $(754.32) |
$40,000-$50,000 | 12,017,312 | $70.1 | $60.4 | $(9.7) | $(807.17) |
$50,000-$75,000 | 21,460,676 | $244.7 | $229.4 | $(15.3) | $(712.93) |
$75,000-$100,000 | 13,685,409 | $268.0 | $258.8 | $(9.2) | $(672.25) |
$100,000-$200,000 | 21,146,537 | $957.6 | $939.9 | $(17.7) | $(837.02) |
$200,000-$500,000 | 6,905,670 | $953.3 | $956.2 | $2.9 | $419.94 |
$500,000-$1,000,000 | 1,108,430 | $352.0 | $357.6 | $5.6 | $5,052.19 |
$1,000,000+ | 539,207 | $908.3 | $1,004.8 | $96.5 | $178,966.52 |
Total | 153,774,296 | $3,826.3 | $3,814.3 | $(12.0) | $(78.04) |
Unfortunately, as the CTC expires -- because it is expensive and lawmakers chose to only include four years of CTC expansion so they could address their other spending priorities -- and as Ways and Means Democrats’ proposed permanent tax hikes remain, most income brackets in JCT’s analysis see a tax hike by 2027.
JCT Distributional Analysis, 2027 | |||||
Income Category | Number of Taxpayers | Current Law, 2027 (billions) | Proposal, 2027 (billions) | Difference (billions) | Difference per taxpayer |
$0-$10,000 | 21,164,012 | $3.5 | $(0.1) | $(3.6) | $(170.10) |
$10,000-$20,000 | 21,641,423 | $(0.2) | $(6.3) | $(6.1) | $(281.87) |
$20,000-$30,000 | 18,595,040 | $31.1 | $30.6 | $(0.5) | $(26.89) |
$30,000-$40,000 | 15,510,580 | $62.4 | $62.5 | $0.1 | $6.45 |
$40,000-$50,000 | 12,017,312 | $86.3 | $86.5 | $0.2 | $16.64 |
$50,000-$75,000 | 21,460,676 | $311.8 | $315.0 | $3.2 | $149.11 |
$75,000-$100,000 | 13,685,409 | $344.3 | $348.9 | $4.6 | $336.12 |
$100,000-$200,000 | 21,146,537 | $1,204.8 | $1,222.4 | $17.6 | $832.29 |
$200,000-$500,000 | 6,905,670 | $1,193.1 | $1,217.0 | $23.9 | $3,460.92 |
$500,000-$1,000,000 | 1,108,430 | $442.2 | $453.8 | $11.6 | $10,465.25 |
$1,000,000+ | 539,207 | $985.4 | $1,089.3 | $103.9 | $192,690.38 |
Total | 153,774,296 | $4,664.7 | $4,819.6 | $154.9 | $1,007.32 |
Further, while few lawmakers will shed tears over taxpayers making between $200,000 and $500,000 facing an average tax hike of $3,460.90 in 2027, JCT’s distributional analysis throws a wrench into President Biden’s promise not to raise taxes on households making less than $400,000.
What’s more, the tax hikes mentioned above are just an estimate for one year. The distributional effects JCT measures in 2029 and 2031 vary from the effects for 2027, and indeed the tax hike is smaller on taxpayers in each of the income brackets mentioned above in both 2029 and 2031. However, it’s reasonable to expect that:
- Over a five-year period of 2027-2031, a household making between $50,000 and $75,000 per year may see a tax increase of between $100 and $150 per year, or $500 to $750 over five years;
- Over the same period, a household making between $75,000 and $100,000 per year may see a tax increase of between $225 and $335 per year, or $1,125 to $1,675 over five years;
- And finally, over the same period a household making between $100,000 and $200,000 per year may see a tax increase of between $525 and $835 per year, or $2,625 to $4,175 over five years.
Democratic lawmakers may believe this tradeoff is worth it. And supporters of the Ways and Means legislation (and President Biden’s agenda) will likely argue that the additional spending these tax hikes will pay for will also benefit lower- and middle-income households, offsetting any of the projected tax increases noted above. It would be disingenuous, though, for proponents of the legislation to completely ignore JCT’s distributional analysis. The analysis is an important contribution to the ongoing discussion of who actually pays tax hikes, as opposed to who the lawmakers say pays a tax hike.
[1] There is a long list of provisions in the Ways and Means legislation that JCT does not include in its distributional analysis. Some of the most important provisions excluded from JCT’s analysis are the electric vehicle (EV) tax credit, expanded Affordable Care Act (ACA) subsidies, certain estate tax and retirement changes, and the impacts of an $80 billion boost to the IRS budget.
[2] NTU took JCT’s analysis and estimated the average tax cut for a taxpayer in each income bracket by matching the income bracket to the number of taxpayers in such bracket estimated by the IRS in their 2018 Statistics of Income (SOI). Due to IRS data lag, 2018 is the latest year for which we have data available. The number of taxpayers in each bracket in 2023 will differ, of course, from the number of taxpayers in each bracket in 2018.