A Democratic bill negotiated between Sens. Joe Manchin and Chuck Schumer would “increase taxes on millions of Americans across every income bracket.”
Sen. Joe Manchin, D-W.Va., talks with Senate Majority Leader Chuck Schumer of New York, on March 15, 2022. (AP)
By Louis JacobsonAugust 3, 2022
GOP claim on tax hikes in Democratic bill doesn’t factor in subsidies, savings
IF YOUR TIME IS SHORT
• 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.
What’s in the bill
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 taxation analysis looks at only part of the bill
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 individua
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