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

Plus, Covid aid saved millions from poverty ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ [The Fisc](   By Yuval Rosenberg and Michael Rainey 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.” News - [Schumer and McConnell Dig In on the Debt Ceiling]( – Politico - [Cruz Set to Filibuster Any Democratic Attempt to Raise Debt Limit]( – Politico - [SALT Cap Rollback for Two Years Debated by House Democrats]( – Bloomberg - [House Democrats’ Plan to Tax the Rich Leaves Vast Fortunes Unscathed]( – New York Times - [House Democrats Push for Permanent Earned Income Tax Credit Expansion]( – CNBC - [Business Groups Sense Momentum in Scaling Back Democratic Priorities]( – The Hill - [Tester Says '100 Percent' of Reconciliation Package Must Be Paid For]( – The Hill - [Rich Heirs Face Expensive Surprise Tucked in Democrats’ Tax Plan]( – Bloomberg Law - [Estate Taxes Are Easy to Avoid. House Democrats Want to Change That.]( – Wall Street Journal - [Democrats Put Tax Hikes on Fast Track — After Knocking GOP’s Haste on Tax Cuts]( – Politico - [Democrats Are Pouring Cold Water on Joe Manchin's Suggested Work Requirement for the Biden Child Tax Credit]( – Insider - [Treasury to Release More Rental Aid to Avert Evictions]( – Politico - [Prices Climbed More Slowly in August, Welcome News for the Fed.]( – New York Times - [A Plan to Hasten the Sale of Surplus Federal Property Gets Bogged Down]( – New York Times - [Biden’s Workplace Vaccine Mandate Faces Headwinds]( – Politico - [Covid Hospitalizations Hit Crisis Levels in Southern I.C.U.s]( – New York Times Views and Analysis - [A Tax Scorecard for Reconciliation, Round 2]( – Marie Sapirie, Forbes - [House Dems Have a $2T Tax Plan. Here’s What You Should Know.]( – Brian Faler, Politico - [What Working-Class Parents Want Biden and Republicans to Know]( – Patrick T. Brown, New York Times - [Should Biden Reappoint Jerome Powell? It Depends on His Theory of Change.]( – Neil Irwin, New York Times - [Biden's Wildly Unconstitutional Vaccine Mandate]( – Justin Haskins, The Hill - [The Lives Lost to Undervaccination, in Charts]( – Emma Pierson, Jaline Gerardin and Nathaniel Lash, New York Times Copyright © 2020 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, [thefiscaltimes.com]( or through Facebook. The Fiscal Times, 399 Park Avenue, 14th Floor, New York, NY 10022, United States Want to change how you receive these emails? [Update your preferences]( or [unsubscribe](