Democratic Tax Plan

By Chris Edwards.

"House Democrats are moving ahead with a huge bill to raise taxes on businesses and individuals, increase welfare handouts, and micromanage numerous industries. It is a complex proposal that would increase taxes $2.1 trillion over 10 years with 66 provisions and would distribute tax breaks and spending with another 79 provisions.

The following table is my summary of the bill based on the official estimates. The bill would raise $2.073 trillion in taxes, distribute $1.202 trillion to infrastructure, green, and safety net programs, and leave $871 billion in higher taxes to be used for other spending in the overall Democratic agenda. Of the $1.202 trillion, 43 percent is tax cuts and 57 percent is spending through refundable tax credits.

Here is a brief summary of the Democratic tax plan:

• Subtitle F, Infrastructure. The main provisions are subsidies for infrastructure bonds, building rehabilitation, and the low‐​income housing tax credit (LIHTC). The LIHTC is an awful, fraud‐​ridden program that mainly benefits developers. That the tax bill would expand it by $29 billion illustrates the absence of evidence‐​based policymaking in Washington.
• Subtitle G, Green Energy. The main provisions are subsidies for electric utilities, biofuels, energy efficiency, and electric vehicles. The subsidies are mainly in the form of tax credits, which are nearly always complex and difficult to administer.
• Subtitle H, Safety Net. The main provisions would expand the child tax credit (CTC), the earned income tax credit (EITC), and the child and dependent care tax credit (CDCTC). The official score shows that three‐​quarters of CTC and EITC benefits are spending, not tax cuts.
• Subtitle I, Tax Increases. The $2.1 trillion in tax hikes include raising the corporate tax rate ($540 billion), raising taxes on business foreign operations ($424 billion), and raising income and capital gains taxes on individuals and small businesses ($1 trillion).

The Democratic tax plan would seize $2.1 trillion from the private economy and use it to micromanage industries and buy votes with handouts to favored interests. The actions of seizing, micromanaging, and handing out benefits would each distort the economy and reduce overall national income.

There would be other costs of the plan. The 145 provisions and the follow‐​on regulations would generate large administrative and compliance costs, which would only benefit high‐​paid lawyers and accountants. Another cost would be diverting the energies of the nation’s business leaders and entrepreneurs from making better products to dealing with all the new rules.

Below is a JCT table showing projected taxes by income level under present law and under the Democratic proposal in 2023. I circled the overall effective tax rates, meaning total federal income, payroll, and excise taxes as a percent of income. Under present law, the average tax rate at the top is 30 percent, which compares to 0–10 percent for groups at the bottom. If the tax plan passed, the average tax rate at the top would rise to 37 percent, while tax rates at the bottom would fall, going negative for some groups as CTC and EITC expansion wiped out all federal taxes for many additional households."