Does the Anti-Inflation Act Violate Biden’s $400,000 Tax Obligation?

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Supporters and opponents of the Senate Democrats’ package of climate change, health care, drug pricing and tax measures introduced last week are debating whether the bill violates the president’s promise. Joe Biden has done since his presidential campaign, to do not raise taxes for households with an income of less than $400,000 per year.

The answer is not as simple as it seems.

“The fun part is you can get a different answer depending on who you ask,” said John Buhl, an analyst at the Tax Policy Center.

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The White House has used $400,000 as a rough cutoff for the wealthy versus middle and lower income earners. That income threshold equates to approx 1% to 2% American taxpayers.

The new draft law, Inflation Reduction ActAccording to tax experts, taxes for households are not directly raised below this line. In other words, the legislation would not increase taxpayers’ annual tax returns if their income is less than $400,000, experts say.

But some aspects of the legislation could have negative consequences – some indirect taxation, experts said. This “indirect” element seems to have channeled its anger.

What is in the Anti-Inflation Act

The legislation, brokered by Senate Majority Leader Chuck Schumer (DN.Y.) and Sen. Joe Manchin (DW.Va.), a key centrist supporter, would extend until 2031. about 485 billion would be invested in climate and healthcare measures. , according to the Congressional Budget Office analysis released on Wednesday.

In general, those costs would take the following form tax benefits and discounts for households buying electric vehicles and saving for their homes, and a three-year extension of the current Affordable Care Act’s health insurance subsidies.

The law would also increase $790 billion in USD by tax means, reforms on prescription drug prices and a tax on methane emissions, according to the Congressional Budget Office. Most of the revenue – 450 billion. USD – includes taxes.

Critics say the changes at companies could affect workers

Specifically, the legislation would provide more resources to the IRS’s tax fraud enforcement and adjust the “carried interest” rules for taxpayers who earn more than $400,000. The carried interest rules allow certain private equity funds and other investors to pay a preferential corporate tax rate.

According to experts, these elements are not controversial in terms of tax liability – they do not increase the annual taxes of middle and low earners.

The Anti-Inflation Act would also introduce a 15% minimum corporate tax on the taxable income of large corporations. This is where “indirect” taxes can come into play, experts say. For example, a corporation with a higher tax bill could pass those extra costs on to employees, perhaps as a smaller raise, or a drop in corporate profits could hurt 401(k)s and other investors who own a stake in the company. investment fund.

The Democrats’ approach to tax reform means raising taxes on low- and middle-income Americans.

Sen. Mike Crapo

Idaho Republican

The current corporate tax rate is 21%, but some companies can reduce their effective tax rate and recover their bill as a result.

According to the Joint Committee on Taxation, this policy would result in individuals earning less than $200,000 in 2023. would pay almost 17 billion analysis published on July 29 This total tax burden until 2031 drops to about 2 billion

“The Democrats’ approach to tax reform means raising taxes on low- and middle-income Americans,” said Sen. Mike Crapo, R-Idaho, a member of the Finance Committee. said analysis.

Others argue that the financial benefits outweigh the indirect costs

According to the Committee for a Responsible Federal Budget, which also estimated that Americans would save $300 billion. USD expenses and 64 billion alone. prescription drug premiums.

The group said the overall policy would result in a net tax cut for Americans through 2027.

Also, setting a minimum corporate tax rate should not be seen as an “extra” tax, but as a “recovery of revenue lost to tax avoidance and stocks that benefit the wealthiest,” former Treasury secretaries have said. They are Timothy Geithner, Jacob Lew, Henry Paulson Jr., Robert Rubin, and Lawrence Summers.

But there are additional wrinkles to consider, according to Buhl of the Tax Policy Center.

For example, how much do companies shift their tax bills to employees rather than shareholders? Buhl said economists differ on the issue. What about companies with a lot of excess cash? Does this cash reserve allow the company to avoid paying indirect tax to its employees?

“You can go down these rabbit holes forever,” Buhl said. “It’s just one of the fun parts of tax compliance,” he added.

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