Analysis finds Biden’s tax and climate bill fiscally responsible

After more than a year of trying, and failing, to bundle much of President Biden’s domestic agenda into a single tax and spending bill, Democrats appear to have finally found a winning combination. They have scrapped most of the president’s plans, cut the cost and focused on climate change, health care and a lower budget deficit.

As soon as party leaders announced the new bill last week, Republicans began attacking it in familiar terms. They called it a giant tax increase and a foolish expansion in government spending, which they argued would hurt an economy reeling from rapid inflation.

But outside estimates suggest the bill would neither build the foundation for a large tax increase nor lead to wasteful federal spending.

An analysis by the Joint Committee on Taxation, a nonpartisan congressional scorer for tax legislation, suggests the bill would raise about $70 billion over 10 years. But the increase would be anticipated: By 2027, the bill would actually amount to a net tax cut each year, as new credits and other incentives for low-emission energy sources would top a new minimum tax on some large corporations. .

That analysis, along with a broader estimate of the bill’s provisions from the nonpartisan Committee for a Responsible Federal Budget, suggests that the legislation, if passed, would add only modestly to federal spending over the next 10 years. By the end of the decade, the bill would be reducing federal spending, compared to what is scheduled if it does not become law.

And because the bill also includes measures to empower the Internal Revenue Service to crack down on corporations and high-income individuals who evade taxes, it is projected to reduce the federal budget deficit over a decade by roughly $ 300 billion.

Adding up the main cost of what Democrats call the Inflation Reduction Act is more complicated than it was for many previous fiscal or spending measures lawmakers passed. The bill combines tax increases and tax credits, just as Republicans did when they passed President Donald J. Trump’s signature tax package in 2017. But it also includes increased spending aimed at boosting tax revenues and a cut in spending intended to put more money in the hands of consumers. pockets.

Maya MacGuineas, chair of the Committee for a Responsible Federal Budget, said the composition of the agreement was very different from a larger bill that Democrats failed to pass in the Senate in the fall. It included several spending programs that would expire after a few years, and budget hawks warned that the overall package would greatly increase the federal debt if those programs were eventually made permanent, as Washington is known to do, without offsetting tax increases. .

Ms MacGuineas called the original idea, known as Build Back Better, “a massive and misleading budget buster”. She had kinder words for the new package, saying it “succeeds in countering inflation, reducing the deficit and, once fully implemented, would actually reduce net spending, without raising net taxes.”

“That’s a pretty monumental improvement,” he added.

The bill stems from an agreement between Majority Leader Sen. Chuck Schumer of New York and Sen. Joe Manchin III of West Virginia, a key centrist Democrat. President Biden blessed it last week and it contains what remains of his once $4 trillion national agenda.

Its centerpiece is a package of measures aimed at fighting climate change by encouraging the transition to lower-emission energy sources, along with expanded health insurance subsidies and a movement to reduce prescription drug costs for seniors by allowing let Medicare negotiate prices.

Over a decade, the core provisions of the deal include about $68 billion in net tax increases, according to the Joint Committee’s model. The bill would impose a new minimum tax of 15 percent on corporations that report profits to shareholders but use deductions, credits and other preferential tax treatments to reduce their effective tax rate well below the statutory 21 percent. It would also reduce the benefits of the so-called accrued interest tax provision, which greatly benefits high-income earners who work in private equity and other parts of the financial industry.

The Joint Committee estimates that those provisions would raise about $326 billion over a decade in new tax revenue. That’s a tax increase on businesses taking advantage of the current tax law, even though Democrats like Manchin and Schumer insist it’s not.

Much of that increase would generally be offset by tax credits for clean energy initiatives such as the purchase of electric vehicles, renewable electricity generation and other carrots aimed at reducing fossil fuel emissions that drive climate change. That would amount to tax cuts for some people, businesses and electric utilities.

Since the deal was announced, Republicans have attacked it as classic taxes and spending, the very terms they’ve used to mock much of Biden’s agenda. Last weekend, Republican senators released a supplemental analysis from the Joint Committee that they said was proof that the entire bill would raise taxes on the middle class, even though it didn’t actually show that middle-class Americans would pay more taxes under the plan.

The Joint Committee’s analysis, released by Republicans in the Senate Finance Committee, found that the new minimum tax for corporations would result in higher effective tax rates for Americans across the income spectrum. The bill would not raise taxes on middle-income people; the main tax increase in the analysis would fall on corporations, not individuals. But the Joint Committee’s estimates assume higher corporate taxes fall in part on the shoulders of workers, whose wages fall as their employers pay more, and Republicans describe that change as a tax increase.

“The Democrats’ approach to tax reform means raising taxes on low- and middle-income Americans to fund their partisan Green New Deal,” Sen. Mike Crapo of Idaho, the top Republican on the Finance Committee, said in posting. the analysis.

Republicans also released another analysis from the Joint Committee showing that the new corporate minimum tax would hurt manufacturers. Democrats responded with their own analysis from the Joint Committee on Tuesday showing that about half of the tax burden on manufacturers would fall on tech, apparel and pharmaceutical companies, which they said had long benefited from the techniques of tax evasion.

“These companies are playing most of the games and evading taxes by manufacturing their drugs, phones and shoes overseas,” said Senator Ron Wyden of Oregon, chairman of the Finance Committee, in a press release.

The spending side of the bill has been slashed from Mr. Biden’s initial ambitions, which included big investments in home health care, universal pre-kindergarten, community college tuition and a host of other measures intended to help workers and students.

The current agreement has reduced that spending to what appears to be more than $100 billion on climate programs; the exact amount is unclear because the Joint Committee and the Congressional Budget Office have not released a full accounting of the bill’s provisions, and about $100 billion in additional health care spending. That includes three years of enhanced subsidies for people to buy insurance through the Affordable Care Act.

It also includes more money for IRS enforcement, which the Congressional Budget Office projects would more than pay for itself, bringing in more than $100 billion in additional net tax revenue over a decade as the agency became better able to collect the taxes that people and businesses already owe.

The Committee for a Responsible Federal Budget estimates that nearly all of that spending would be offset over a decade by reductions in federal health care spending prompted by the bill, including the central effort to allow Medicare to negotiate drug prices.

Both the committee and the Penn Wharton budget model at the University of Pennsylvania project that over a decade, the full effect of those changes would reduce federal budget deficits. The committee estimates the savings at just over $300 billion, but says they could be even higher if the IRS crackdown works better than the Congressional Budget Office expects. Penn Wharton pegs deficit reduction at about $250 billion.

Mr. Trump’s tax cuts also contained a mix of tax cuts and tax increases, but with a very different end result for the debt. He reduced a wide range of individual and corporate income tax rates, among other tax cuts, while eliminating or limiting some tax preferences, such as a deduction for state and local taxes paid that the law limited to $10,000 per year.

Some of those tax changes would have been significant tax increases on their own, such as eliminating the personal exemption for individual income tax filers. But together, they added up to a huge tax cut, which the Joint Committee initially estimated at $1.5 trillion net.

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