An analysis found that the Inflation Reduction Act would reduce the tax burdens of most people but still decrease the after-tax income of some earning below $400,000.
On Tuesday, the Joint Committee on Taxation, Congress’s official tax scorekeeper, released its first analysis after the legislation was passed by the Senate over the weekend.
Its results stand in stark contrast to previous estimates requested by Republicans showing that people in every tax bracket would suffer losses. Those estimates did not include tax breaks for Obamacare plans and clean energy incentives, which the report released Tuesday did incorporate.
The analysis projects that in the first year, those earning up to $200,000 will see their effective tax rates decline, while those making between $200,000 and $500,000 would see their tax burden increase by 0.8%.
Republicans have accused President Joe Biden of violating his campaign pledge not to raise taxes on anyone earning over $400,000 annually, although the legislation does not impose direct tax increases for those earning less than that amount. Instead, the JCT numbers in part show the projected effects of increasing corporate taxes, which would partly be borne by shareholders and workers in the middle class.
INFLATION REDUCTION ACT CLEARS ROADBLOCKS IN HOUSE DESPITE SALT TAX SNUB
Some low-income consumers would see big declines in their tax burden next year as a result of the legislation, something the White House will surely tout. Those earning between $20,000 and $30,000 would see a 9.4% decrease in their tax burden, while those making $30,000 to $40,000 would experience a 4% decline.
Over time, though, the tax burdens for all brackets rise as tax credits for Obamacare plans and clean energy expire. Burdens tick up slightly by 2027, most by about 0.1%.
The legislation’s passage by a 51-50 vote in the Senate was a major win for the Biden administration and came after centrist Sen. Kyrsten Sinema (D-AZ) exacted some concessions with how the bill changes the U.S. tax code.
A key carve-out extended to Sinema was exempting a feature of the tax code that allows businesses to quickly write off investments from the portion of the bill that would apply a minimum tax to the income of corporations.
The legislation includes a minimum 15% tax on the adjusted financial statement income of big corporations, known as “book income.” In other words, the companies would have to calculate their taxable income twice — once using the tax code and applying a 21% rate and a second time using financial accounting and applying a 15% rate.
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As part of the agreement, Democratic leadership agreed to nix raising taxes on carried interest, a form of income earned by private equity fund managers that is subject to a lower tax rate.
In order to compensate for the revenue losses from paring back provisions in the book tax and slashing carried interest changes, Sinema and leadership agreed to impose a 1% excise tax on stock buybacks.
