Analysis | Senate bill and Biden’s pledge to levy no taxes on those earning less than $400,000 – The Washington Post | Vette Leader


“The misnamed ‘Inflation Reduction Act’ will do nothing to pull the economy out of stagnation and recession, but it will raise billions of dollars in taxes for Americans earning less than $400,000.”

– Senator Mike Crapo (R-Idaho), senior Republican on the Senate Finance Committee, in a press release30th July

We’ve long found that complex tax and budget issues are ripe for a spin that baffles the ordinary reader. Crapo’s comment above exemplifies a GOP attack on the massive bill that passed the Senate over the weekend and is up for a vote in the House of Representatives this week.

The question at stake is whether President Biden failed in his 2020 campaign promise not to levy taxes on those earning less than $400,000 a year. Whether this is good tax policy is debatable, but it was wise policy. During the campaign, President Donald Trump claimed around 80 times that Joe Biden would raise taxes for all or most Americans. Biden had a consistent refrain — that was wrong, nobody earning less than $400,000 a year would face higher taxes.

Of course, such a memorable promise must be subject to constant scrutiny by political opponents. Each time different versions of the president’s tax laws were drafted, the administration insisted that he stick to his promise.

But Crapo, citing the official record from the bipartisan Joint Committee on Taxation (JCT), says Biden broke his promise.

The bill — which our former colleague Steven Pearlstein said would do virtually nothing to curb inflation — is a catch-all package that includes clean energy stimulus, healthcare policies like an extension of Affordable Care Act subsidies, additional tax service hires and new corporate taxes . There’s little in the bill that would directly impact people’s tax returns, except for things like tax credits for buying electric cars or adding solar power to homes.

But the corporate tax hikes offer Republicans political gold. The JCT assumes that companies will adjust to a higher tax by reducing investment returns or cutting workers’ wages; it allocates corporate tax at 25 percent to labor and 75 percent to capital. Many other groups analyzing the impact of new tax policies take a similar stance.

The Tax Policy Center, a bipartisan group, estimates that over time 60 percent of corporate taxes will be borne by shareholders, 20 percent by equity owners and 20 percent by workers. These cuts are then reflected in the after-tax income distribution tables, even if none of these low-wage workers are directly affected by corporate taxes.

However, there may be indirect effects. For example, workers who earn less than $400,000 could have investments in their 401(k) plans that would be adversely affected by the corporate tax hike.

In any case, for many Americans, even the estimated impact of these “tax hikes” is rather small — less than $100 a year — but these charts give Republicans a catch to claim that taxes will rise for almost every income group.

Economists have long debated the impact of corporate taxes on employment. It’s worth noting that these models work in their favor as Republicans prefer to cut corporate taxes as the models assume companies would increase workers’ wages and hence after-tax income.

Amanda Critchfield, a spokeswoman for the GOP staff of the Finance Committee, acknowledged that the bill would not affect people’s tax returns. But she argued the impact was real.

“If you’re referring to the individual tax rate in the tax code change, ie a change on your tax form, then no – that doesn’t change,” she said in an email. “If you’re talking about people paying more taxes because of tax incidence, then yes — JCT estimates people will pay more taxes.”

Critchfield pointed to a 2020 working paper published by the Bureau of Economic Research that examined the impact of corporate taxes on product prices. It concluded that existing models “significantly underestimate the impact of corporate taxes on consumers”. The study says that 31 percent of a tax increase will be borne by consumers through higher prices, 38 percent by workers through lower wages, and 31 percent by property owners.

Crapo said at an Aug. 3 news conference that there was a “technical argument” about whether Biden’s promise was only about tax rates. “Technically [the bill is] not increase [middle-class Americans’] tax rates,” he said. “It’s raising taxes, and they’re paying them — they’re going to be the ones to bear the burden of those taxes.”

When the same question of distribution models surfaced in 2020, Biden campaign officials said the test was how a tax plan signed into law by Biden would affect individuals if they had to calculate their taxes. They also argued that the models often failed to account for tax proposals that would mitigate the suspected impact of corporate taxes.

For example, the JCT did not initially calculate the benefits of excise tax refunds, health premium subsidies and lower prescription drug costs that the bill hopes to deliver.

“A full distributional analysis of the entire bill would show lower costs or taxes for all but the wealthiest individuals,” said Marc Goldwein, senior vice president of the Federal Budget Committee. A memo issued by the CRFB said that “the $64 billion in ACA subsidies alone would be more than enough to offset net tax increases below $400,000 in the JCT study,” while the bill also “reduces the cost of prescription drugs for individuals.” (Bounty and out of pocket) by around $300 billion.”

Various think tanks are still crunching the numbers of the final version of the bill, presented by the Senate over the weekend. Critchfield said Republicans asked the JCT to conduct an analysis that included ACA subsidies and many energy credits. That analysis still found a net tax increase, even though the ACA subsidies are only renewed for three years, so when they expire, it looks like a tax increase in the later years covered by the bill.

There is one more wrinkle. Bill Gale and John Buhl of the Tax Policy Center have noted that the JCT makes no distinction between “normal” and “above average” returns in its analysis. Normal is what is required for a successful enterprise, while supernormal means excess profits derived from “patents, special expertise, outsized influence on product or labor markets, or just plain luck”. The bill would impose a minimum tax on companies with earnings of $1 billion or more — which are more likely to generate above-average returns. That could mean the tax would be less likely to impact investment or hiring than the JCT estimate suggests.

There is no easy way to settle this debate. By the standards set by the Biden campaign in 2020, the president appears to have kept his promise not to tax anyone earning less than $400,000 a year. Even Republicans concede that tax rates haven’t changed.

But the JCT is also the gold standard for analyzing the impact of tax policies – and few economists would dispute that higher corporate taxes can find their way into the economy and eventually impact hiring and investment.

Also difficult to measure is the combined effect of the various stimuli included in the bill and whether they essentially negate the estimated impact of the corporate tax cut – which is not very large for most income groups.

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