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Tax Policy

H.R. 7160, SALT Marriage Penalty Elimination Act: Revenue Effect

H.R. 7160, which was introduced on January 31, 2024, would raise the cap on the state and local tax deduction (SALT) from $10,000 to $20,000 for joint returns with AGI below $500,000 in 2023. After tax year 2023, the legislation would allow the SALT cap to revert to its current law value of $10,000 for joint filers until 2026. At that point, the cap will expire along with several other individual tax provisions from the 2017 Tax Cuts and Jobs Act.

As shown in Table 1, PWBM estimates that H.R. 7160 would reduce revenue by $12 billion over the 10-year budget window, with all of the revenue lost falling in fiscal year 2024.

Family and Community Inflation Relief Act: Budgetary and Distributional Effects

On July 21st 2022, Senator Chuck Grassley (R-IA) introduced legislation (text, summary) that would index the value of certain tax benefits to inflation.

Middle-Class Savings and Investment Act: Budgetary and Distributional Effects

On June 14th 2022, Senator Chuck Grassley (R-IA) introduced legislation (text, summary) that would make five changes to the tax code starting in tax year 2022.

Modification of Limitation on Deduction for State and Local Taxes

Under current law, individuals can deduct up to $10,000 in state and local taxes (SALT) from taxable income through 2025, after which no limitation applies. The proposal would make two permanent changes to the deduction. First, it would set the maximum deduction value to $50,000. Second, it would introduce a phase-out range for the deduction: from $400,000 to $800,000 in AGI, the maximum deduction would decrease from $50,000 to $10,000.

We estimate the proposal would raise $355 billion in revenue over the 10-year budget window. In 2022, taxpayers in the top quintile of incomes would see 95 percent of the benefits from this policy. In 2026, when a deduction cap represents a tax increase relative to current law, nearly all of the additional tax burden would fall on the top 5 percent of taxpayers. After-tax incomes for the top 1 percent of taxpayers by income would decrease by more than 3 percent.

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H.R. 5376, Build Back Better Act: Budgetary Effects

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Last week, the House Committee on Rules issued updated reconciliation legislation as H.R. 5376, Build Back Better Act (available here). PWBM estimates that the proposal would cost $2.1 trillion, offset by $1.8 trillion in new revenues and other savings.

In order to provide additional context as part of the current reconciliation debate, PWBM has also estimated an illustrative scenario where all spending and revenue provisions in the Build Back Better Framework are permanent. These estimates are neither PWBM’s estimate of any current legislation nor PWBM’s estimates of the Build Back Better Framework released by the House of Representatives. PWBM estimates that making all provisions of the proposal permanent would cost an additional $2.5 trillion.

Modification of Limitation on Deduction for State and Local Taxes

Under current law, individuals can deduct up to $10,000 in state and local taxes (SALT) from taxable income through 2025, after which no limitation applies. The latest House bill under the Build Back Better framework would instead set the limitation to $80,000 from 2022 to 2030 and $10,000 in 2031.

We estimate this provision would raise $65 billion in revenue over the 10-year budget window, with net revenue loss concentrated before 2026. In 2022, taxpayers in the top 10 percent of incomes would see 88 percent of the benefits from this policy. In 2026, when an $80,000 represents a tax increase relative to current law, the provision would raise taxes for those in the top 5 percent only, with more than 99 percent of the increase falling on the top 1 percent of households.

We will continue to update this page with new SALT limitation provisions as they firm up in Congress.

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White House Build Back Better Framework, Illustrative Permanent Scenario

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In order to provide additional context as part of the current reconciliation debate, PWBM has estimated a scenario where all spending and revenue provisions in the Build Back Better Framework are permanent. The table below reflects this alternative. These estimates are neither PWBM’s estimate of any current legislation nor PWBM’s estimates of the Build Back Better Framework released by the White House.

White House Reconciliation Revenue Package

At 9AM this morning, the White House released a set of revenue options for budget reconciliation that the White House estimated to total $1,995 billion over 10 years (available here). PWBM's estimate of the same package is $1,527 billion, a difference of $468 billion.

Revenue Provisions in the House Ways and Means Reconciliation Bill: Budgetary Effects

PWBM projects that the revenue-raising provisions in the House Ways and Means Reconciliation Bill would raise roughly $2.4 trillion from 2022 to 2031. For more information, please see our full analysis.

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The Macroeconomic Effects of the August 2021 Senate Budget Reconciliation Package

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Drafting a budget from the August 2021 Senate reconciliation framework that satisfies the Senate rules of reconciliation (“Byrd Rule”) will require a decrease in new outlays or a large increase in revenues (or both) after the standard 10-year budget window. One such potential reduction in spending would allow the new non-healthcare related discretionary spending provisions to expire after 2031. With this reduced spending in 2031, we project that the reconciliation package will decrease GDP by 4.0 percent in 2050. Without this spending decrease (and where the Byrd Rule is not satisfied), we project a 4.8 percent fall in GDP in 2050. For more information, please see our full analysis.

Options for Raising the Corporate Income Tax Rate

PWBM analyzed an increase in the corporate income tax rate to 28 percent, from its current level of 21 percent, as part of the Biden presidential campaign platform. Here, we analyze the budgetary and macroeconomic effects of corporate income tax increases to 25 percent, 28 percent, and 30 percent. This estimate will be updated as additional data becomes available on the state of the COVID-19 pandemic and the economy.

Senator Romney’s Proposed Family Security Act

In early February 2021, Senator Mitt Romney (R-UT) proposed the Family Security Act to consolidate several forms of federal child assistance into a single, expanded child benefit to be administered through the Social Security Administration (SSA).

The act would provide a fully-refundable child allowance of $4,200 annually ($350 per month) per child ages 0-5, and $3,000 annually ($250 per month) per child ages 6 through 17. The credit would phase out at a rate of $50 for every additional $1,000 of income above the phase out threshold ($200K single / $400K joint).

The act would also simplify the existing structure of the Earned Income Tax Credit (EITC), so that the value of the credit is determined by filing status (married or single), and whether or not there are any eligible dependents (the number of dependents would no longer affect the value of the credit).

Other proposed changes to the tax code include elimination of head of household status, elimination of the child and dependent care credit (CDCTC), and elimination of the State and Local Tax (SALT) deduction.

PWBM projects that this proposal would cost $283 billion over the budget window, not including proposed changes to SNAP eligibility and elimination of TANF.

Ways and Means Committee Child Tax Credit Expansion Proposal

In early February 2021, Congressman Richard E. Neal (D-MA), Chairman of the House Ways and Means Committee, released legislative proposals for COVID-19 economic relief to be considered under the budget reconciliation process. One major element of the proposal is an expansion of the Child Tax Credit (CTC), similar to the plan envisioned in President Biden’s stimulus proposal. The CTC proposal would make the Child Tax Credit fully refundable, and would provide annual benefits of up to $3,600 per child under age 6, and up to $3,000 for children 17 and under. The credit would begin phasing out in value at a rate 5 cents for each additional dollar of income above $75,000 for single filers, $150,000 for married filers, and $112,500 for head of household filers. For tax units with incomes above these phase-out thresholds, the value of the credit would remain unchanged from current law.

PWBM projects that this provision would cost $100 billion. Families in the bottom 80 percent of the income distribution would see an average benefit of over $3,100.

Capital Gains Withholding

We estimate the budgetary effects of withholding unrealized capital gains from wealthy taxpayers. The proposal would treat death and charitable contributions as taxable realization events, and require taxpayers with net worth above a certain threshold to pre-pay taxes on their unrealized capital gains over ten years. We estimate the revenue effects under two tax rate regimes and several net worth thresholds. For more details on this proposal, refer to the working paper “Capital Gains Withholding” by Emmanuel Saez, Danny Yagan, and Gabriel Zucman.

President Trump’s Proposed Corporate Tax Rate Drop

We present budgetary and economic estimates for President Trump's proposed corporate income tax rate reduction from 21 percent to 20 percent.

President Trump’s Proposed Capital Gains and Dividend Tax Cut

PWBM estimates that reducing the top preferential rates on capital gains and dividends from 20 percent to 15 percent will cost $98.6 billion dollars over the ten year budget window. This tax cut will only benefit tax units in the top 5 percent of the income distribution, with 75 percent of the benefit accruing to those in the top 0.1 percent of the income distribution. Please refer to our analysis of the estimate for more information.

Forgiveness of Deferred Payroll Taxes

We estimate the budgetary and distributional effects of permanently forgiving the September to December 2020 payroll tax deferral under President Trump's August executive order. We project that this forgiveness would cost $122 billion dollars.

Presidential Candidate Joe Biden’s Proposed Child Tax Credit Expansion

Presidential candidate Joe Biden recently announced a proposal to temporarily expand the Child Tax Credit (CTC). We find that this proposal would cost $110 billion if implemented solely for calendar year 2021 and would cost $1.4 trillion over ten years if extended permanently. While higher income households are more likely to have qualifying children and would see larger average tax cuts ($1160 for the 90-95th percentile), lower income groups would see the largest relative benefit, with after-tax incomes increasing by 9 percent for the bottom quintile. Refer to our analysis of the estimate for more information.

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The Biden Platform

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Presidential candidate Joe Biden’s campaign has released a substantial list of policy proposals. PWBM finds that over the 10-year budget window 2021 – 2030, the Biden platform would raise $3.375 trillion in additional tax revenue and increase spending by $5.37 trillion. Including macroeconomic and health effects, by 2050 the Biden platform would decrease the federal debt by 6.1 percent and increase GDP by 0.8 percent relative to current law. Almost 80 percent of the increase in taxes under the Biden tax plan would fall on the top 1 percent of the income distribution. Please see our analysis of the estimate for more information on the proposals.

Business Taxation in the Biden Tax Plan

We analyze several foreign and domestic business taxation provisions from the Biden tax plan. While raising the effective tax rate on foreign profits increases domestic capital, wages, and GDP, provisions that raise domestic business taxes have the opposite effect—when combined, these business tax provisions decrease the capital stock by 0.21 percent and decrease wages by 0.69 percent in 2050.

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