Pretend it’s April 2021. President Joe Biden, House Speaker Nancy Pelosi, and Senate Majority Leader Chuck Schumer are putting the finishing touches on the conference report for H.R. 1, the “COVID Emergency Relief Reconciliation Act of 2021,” which everyone on Capitol Hill calls by its acronym, “CERRA.” It only requires a bare-majority, party-line vote in both chambers (without resorting to any Senate nuclear options), since Democrats have chosen to use budget reconciliation rules. Because CERRA raises tax revenue outside the budget window, all of its tax increases are permanent law. Using the precedent of the 1993 Clinton tax hike, the tax increases in CERRA are retroactive to the beginning of 2021.
The revenue title of CERRA is the most liberal, radical tax legislation Washington has seen in decades. It raises the top tax rate on wages from 40.8% to a modern record 55.8% (accounting for the federal income tax, the Medicare payroll tax, and the Social Security payroll tax increase). That’s the highest tax rate on labor income seen since the Jimmy Carter administration. When states and localities are added in, top wage earners could easily surrender over 60% of their marginal income to the government.
