New modeling by the Tax Foundation estimates that the Democratic inflation legislation’s tax hikes would eliminate some 30,000 jobs.
The nonpartisan Tax Foundation, which generally favors lower taxes, released its analysis of the legislation being championed by Sens. Joe Manchin (D-WV) and Chuck Schumer (D-NY) on Tuesday. The group estimates that the tax changes — the biggest of which would be a 15% minimum tax on a company’s “book income,” higher taxes on the carried interest income earned by private equity firms, and additional funding for the IRS — would result in a net loss of jobs and would likely have negligible effects on inflation.
The plan, called the Inflation Reduction Act, would reduce long-run gross domestic product output by about 0.1% and slash roughly 30,000 full-time equivalent jobs in the United States, according to the group.
The modeling also found that the plan would decrease wages by about 0.1% and raise just over $300 billion in net revenue.
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The most notable aspect of the Manchin-Schumer legislative proposal is that it would levy a 15% minimum tax on the book income of companies.
The U.S. now has a 21% corporate tax rate, which it assesses based on companies’ tax returns. The new plan would assess a minimum 15% tax on the adjusted financial statement income of corporations, something Democrats contend would raise $313 billion in new tax revenue.
The Tax Foundation projects that the 15% book tax would raise $234 billion, below the $313 billion that the Joint Committee on Taxation estimates.
The proposal also includes hiking taxes on carried interest, a form of income earned by private equity funds that is subject to a lower tax rate. The Tax Foundation predicts that will net some $14 billion in revenue over the next decade, compared to the JCT estimate of $14 billion.
While the Democratic legislation highlights inflation reduction as a key priority, the new modeling found that while its effect on inflation is particularly uncertain, it would “likely close to zero.”
That is similar to the findings of the Penn Wharton Budget Model, hosted by the University of Pennsylvania’s business school, which were that the legislation’s effect on inflation would be “statistically indistinguishable from zero.”
The Senate is evenly split, with Democrats enjoying a slight edge given Vice President Kamala Harris’s tiebreaking vote. That means Manchin’s support is crucially important, although its path to passage is still far from clear given uncertainty surrounding whether fellow centrist Kyrsten Sinema (D-AZ) will give it the green light.
“To the extent the durability of the bill’s provisions are in doubt — that is, due to the lack of bipartisan support — it may have little impact on expectations about the fiscal outlook and therefore inflation,” said Garrett Watson, senior policy analyst at the Tax Foundation. “On balance, the long-run impact on inflation is particularly uncertain but likely close to zero.”
Republicans have rallied in particular against the minimum book income tax, contending that it will hike taxes for the middle class and harm U.S. manufacturers.
The JCT found that because of increased taxes on corporations, people in every tax bracket would suffer losses. The overall tax burden for those earning less than $200,000 annually would increase by $16.7 billion in 2023, the JCT’s analysis found.
Still, the White House said those concerns are overblown because the JCT scoring, requested by Republicans, doesn’t include a calculation of the effects of Obamacare tax credits, prescription drug savings, and clean energy tax credits.
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Senate Republicans, citing the JCT, have also said that nearly 50% of the tax would be borne by the manufacturing industry, a projection the GOP said would hurt manufacturers when they are already suffering from explosive inflation and supply chain disruptions.
Democrats, though, assert that the 15% corporate minimum tax paid by manufacturers under the proposal would be borne by “well-known tax dodgers” in the tech, apparel, and pharmaceutical industries.
