A Middle-Class Tax Cut — or Is it a Tax Hike?

By Yuval Rosenberg

Tuesday was jam-packed with news as Democrats
continued to push their budget reconciliation plan through House
committees — and continued their wrangling over details of the
package. Among the ongoing fights: a trio of centrists are
threatening to vote against their party’s plan to
lower drug prices, potentially derailing that section of the
legislation.

Just a reminder: While that’s going on, the federal government
will shut down in 16 days if Congress doesn’t provide funding, and
the federal debt limit also needs to be raised or suspended, though
lawmakers appear no closer to agreeing on how they might do
that.

Here’s what you need to know.

Democratic Plan Would Cut Taxes for Most, Hit Top Earners
Hardest: JCT

The tax changes proposed by House Democrats this week would
lower taxes for most Americans, at least in the near term, while
hitting top-earning households with sizable increases, according to
estimates
released Tuesday by the bipartisan congressional Joint Committee on
Taxation (JCT).

The Democratic plan, which is being debated again this week by
the House Ways and Means Committee, calls for restoring a top
marginal individual income tax rate of 39.6%, up from the current
37%. It also includes a host of other changes to individual,
capital gains and corporate taxes that, combined, would raise more
than $2 trillion for the U.S. Treasury over the next 10 years,
according to the JCT.

The congressional tax scorekeeper estimated that households
making less than $200,000 a year would see lower tax bills through
at least 2025, largely as the result of the expanded child tax
credit, while those making at least $1 million a year would face a
10.6% increase in federal taxes in 2023 and a 12.1% increase by
2025. The average federal tax rate for those top-earners would
climb from 30.2% now to 37.3% in 2023 and 38.1% by 2027.

The JCT estimates don’t include Democrats’ proposed increase in
the estate tax, meaning that the tax hit on wealthy households
would be even higher.

“We are taking a significant step toward leveling the playing
field,” House Ways and Means Committee Chair Richard Neal (D-MA)

said Tuesday. “No one likes raising taxes, but
thanks to the strength of our economy, we can afford to do
this.”

A problem for President Biden? The JCT estimates show
that households making between $200,000 and $500,000 a year face an
average tax increase of 0.3% in 2023. They also show that if
lawmakers allow temporary changes to the tax code to expire as
scheduled, including the expansion of the child credit, households
making between $30,000 a year and $200,000 a year would see their
taxes go up slightly, on average, by 2027. Households making
$30,000 to $40,000 a year would see their average tax bill rise by
0.1% while those earning between $100,000 and $200,000 would face a
1.5% average increase.

The House budget plan would extend the credit for four years and
many Democrats want to make the new child tax credit permanent, but
others have expressed concerns about doing so. Most notably, Sen.
Joe Manchin (D-WV) is pushing for a new requirement that parents
work in order to be eligible for the credit. “Tax credits are based
around people that have tax liabilities. I’m even willing to go as
long as they have a W-2 and showing they’re working,” he told

Insider.

With the long-term fate of the credit unclear, the JCT estimates
factoring in its expiration after four years opened the door for
Republicans to claim that the plan violates
President Biden’s pledge not to raise taxes on people making less
than $400,000 a year.

“You’ll hear today that President Biden doesn’t
break his pledge on taxing Americans making less than $400,000, but
that’s false as well,” said Rep. Kevin Brady of Texas, the top
Republican on the Ways and Means Committee.

Republicans oppose the tax plan and have warned that it will
hurt the middle class as well as businesses large and small.
Brady on Tuesday argued, as many economists do,
that the corporate tax increase would be felt by individuals, too:
“As you know, businesses don’t pay taxes, they collect them. And
those burdens land on their workers, lands on their customers,
lands on the retirees whose retirement depends on their success,
and it lands on the communities that they live in.”

Quotes of the Day

“Republicans are united in opposition to raising the debt
ceiling.”

– Senate Minority Leader Mitch McConnell (R-KY), after being
asked whether any Republicans would support a stopgap measure that
would raise the debt limit and extend the federal government’s
funding, which will run out at the end of the month.

“We are going to need the White House to be all in. They have
been transitioning to being that and have been extremely involved
in the last couple of weeks."

– Rep. Pramila Jayapal (D-WA), chair of the Congressional
Progressive Caucus, in a piece at
The Hill noting that Democrats expect it will be
difficult to get their $3.5 trillion budget plan through the House,
where they can only afford to lose three votes.

Covid Relief Programs Saved Millions From Poverty: Census

By at least one key measure, the percentage of the population
living in poverty fell to a record low in 2020, thanks to the
unprecedented relief effort by the federal government in response
to the Covid crisis, the U.S. Census Bureau announced Tuesday.

According to the Bureau’s
Supplemental Poverty Measure, which takes into
account the effects of a wide range of government aid programs, the
poverty rate fell to 9.1% — more than two percentage points lower
than the 11.8% rate recorded in 2019. That’s the lowest reading for
the supplemental measure since 1967, when modern poverty records
began.

At the same time, the official poverty rate — which accounts for
some government programs, such as unemployment and Social Security,
but not others, including food aid, housing assistance, stimulus
checks and tax credits — increased by 1 percentage point in 2020,
to 11.4%, a remarkably small change given the enormity of the
economic crisis at hand.

“It all points toward the historic income support that was
delivered in response to the pandemic and how successful it was at
blunting what could have been a historic rise in poverty,”
Christopher Wimer of the Columbia University School of Social Work

told The New York Times.

Better than 2009: The Census notes that the Covid relief
programs were far more effective at cutting poverty than the aid
provided after the Great Recession. By all measures, poverty rose
significantly at that time, in large part because the $900 billion
authorized by Congress was much smaller compared to the trillions
of dollars lawmakers spent in 2020 and 2021.

The reductions in poverty were also remarkably widespread, with
virtually every demographic group seeing declines in poverty rates
due to government assistance.

Boosting the Biden agenda: The Census report provides
more fodder for supporters of President Joe Biden’s economic
agenda, which calls for extending some Covid relief programs as
part of a broader effort to strengthen the social safety net.

White House economist Jared Bernstein told the Times that the
data show that these aid programs are extremely effective in
reducing poverty, and worth continuing. “It’s one thing to
temporarily lift people out of poverty — hugely important — but you
can’t stop there,” Bernstein said. “We have to make sure that
people don’t fall back into poverty after these temporary measures
abate.”

Republicans, for the most part, will disagree, regardless
of the data, arguing that while the programs may have made sense
during a severe recession, they would, if made permanent,
constitute a “reckless taxing and spending spree,” as Senate
Minority Leader Mitch McConnell (R-KY) put it Monday.

Charts of the Day

With Japan poised to surpass the U.S. in percentage of
population vaccinated, the U.S. will soon be the vaccination
laggard of the G7 nations, The Washington Post’s Ishaan Tharoor

said Tuesday.

Along the same lines, former Biden White House
Covid adviser Andy Slavitt noted
that, “By the end of September, the US will have the lowest
vaccination level of all prosperous democracies, with the largest
supply & the biggest head start.”

A pair of charts from The New York Times gets at the cost of the
slowdown in vaccinations. According to Times analysis, the failure
of states to vaccinate their populations as quickly as the leading
state, which has been Vermont for much of the pandemic, has cost
thousands of lives.

“During the latest coronavirus wave, in July and August, at
least 16,000 deaths could have been prevented if all states had
vaccination rates as high as the state with the highest vaccination
rate,” the
Times says. “The number of lives that could have
been saved will grow unless vaccination rates in lagging states
improve.”

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