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Ways and Means Proposes $1.3 Trillion of Tax Breaks, $2.3 Trillion of Tax Hikes

Sep 13, 2021 | Budgets & Projections| Taxes

UPDATE (9/13/2021): The Joint Committee on Taxation has released a full score of the revenue proposals, including the revenue-raising items. The table below and text has been updated to reflect this. An earlier version relied on the leaked fact sheet.

The House Ways and Means Committee recently released draft legislation to create, expand, or extend a number of tax breaks for businesses and individuals. A widely leaked document (and subsequently published score) also offers preliminary estimates of the revenue-raising proposals the committee has introduced to help finance an expected $3.5 trillion total of tax breaks and spending under reconciliation.

Based on recent estimates from the Joint Committee on Taxation (JCT) and estimates of policies included in the legislation but not scored (namely tax gap provisions), it appears the Ways and Means Committee will propose roughly $1.31 trillion of tax breaks and $2.26 trillion of net tax increases, generating $943 billion on net to help finance the reconciliation bill's spending measures.

The table below shows our best understanding of the fiscal impact of these tax policies and compares them to similar measures in the President’s Fiscal Year 2022 budget. Figures may change as more information is made available. Importantly, the table only covers tax policies; it does not include spending proposals or changes to the Affordable Care Act (ACA). In total, the House is apparently aiming to enact roughly $3.5 trillion of tax breaks and spending increases, with about $2.9 trillion offset through tax hikes and health care savings. The table includes the outlay effect of tax policies while excluding the potential revenue impact of spending policies. Most of the differences shown between the Ways and Means Committee and the President's budget are driven by differences in the proposed policies; some changes are due to estimating differences between the White House and Congressional scorekeepers.

Policy Ways and Means President's Budget
Extension of expanded Child Tax Credit (CTC) $556 billion $449 billion
Permanent extension of expanded Child and Dependent Care Tax Credit (CDCTC) $98 billion $104 billion
Permanent extension of expanded Earned Income Tax Credit (EITC) $135 billion $105 billion
Tax Benefits for Caregivers $36 billion <$1 billion
Subtotal, Tax Cuts and Credits for Individuals $825 billion $659 billion
     
Automatic retirement contributions $24 billion n/a
Expanded Savers Credit $23 billion n/a
Subtotal, Retirement Provisions $47 billion $0
     
Infrastructure financing subsidies $42 billion $12 billion
New Markets Tax Credit $2 billion $4 billion
Rehabilitation tax credits $26 billion n/a
Disaster and resiliency tax relief $3 billion $4 billion
Housing tax credits $47 billion $45 billion
Credits for tribes and territories $11 billion n/a
Subtotal, Infrastructure Tax Breaks $131 billion $65 billion
     
Renewable electricity and energy $134 billion $297 billion
Renewable fuels $43 billion $11 billion
Electric Vehicles (EV) and other green vehicles $42 billion $17 billion
Energy efficiency incentives $39 billion $35 billion
Green workforce and environmental justice $15 billion n/a
Subtotal, Climate-Related Tax Breaks $273 billion $360 billion
     
Tax cuts for universities and college students $5 billion n/a
Tax cuts for residents and medical students $5 billion n/a
Delay of amortization of research and experimentation, other tax cuts $27 billion n/a
Subtotal, Other Tax Breaks $37 billion $0
     
Total Tax Breaks $1,313 billion $1,084 billion
     
Raising the top rate to 39.6 percent $170 billion $132 billion
Capital gains taxes (including carried interest) $123 billion $324 billion
Expanding 3.8 percent NIIT/SECA surtax $252 billion $237 billion
Limiting the 20 percent pass-through deduction (199A) $78 billion n/a
Extension of the limitation of business loss deductions $167 billion $43 billion
Surtax on income above $5 million $127 billion n/a
Estate tax changes and other increases $82 billion n/a
Subtotal, Taxes on High-Income Households $1,000 billion $736 billion
     
$80 billion of Internal Revenue Service (IRS) funding for tax enforcement (net) $120 billion
(CBO estimate)
$239 billion^
Closure of conservation easement loopholes $13 billion n/a
Information reporting and other measures $1 billion $473 billion^
Subtotal, Tax Compliance (Tax Gap) Revenue $134 billion $711 billion
     
Increase the corporate tax rate $540 billion $858 billion^
Reforms to international tax rules and other corporate tax rules $406 billion $1,029 billion
Imposing a minimum corporate tax n/a $148 billion
Ending fossil-fuel-related tax breaks n/a $35 billion
Subtotal, Taxes on Corporations $946 billion $2,070 billion
     
Superfund and oil taxes $38 billion $25 billion
Tobacco and nicotine taxes $97 billion n/a
Other tax changes $42 billion $20 billion
Subtotal, Other Taxes and Tax Changes $177 billion $45 billion
     
Total Revenue Increases $2,256 billion $3,562 billion
     
Net Savings from Tax Provisions $943 billion $2,478 billion
     
Memo: Total Outlay Effect of Proposals $768 billion $1,176 billion
Memo: Total Revenue Effect of Proposals $1,711 billion $3,654 billion

Sources: Joint Committee on TaxationPresident's FY 2022 Budget, and Congressional Budget Office. Numbers may not sum due to rounding.
^ Congressional scorekeepers have or would likely estimate much lower figures than included in the President's budget; CBO has estimated the IRS funding proposal will generate $120 billion on net, while JCT has estimated that raising the corporate tax rate to 28 percent would raise just over $700 billion. Estimates for information reporting have not been released, but they will likely be much lower than the Administration's figure.

The tax breaks proposed by the Ways and Means Committee are roughly $230 billion larger than those in the President’s budget on net. Larger costs are driven from over $100 billion more for the Child Tax Credit expansion, about $75 billion more for electric vehicles and other climate related tax breaks, $65 billion more in bond and infrastructure subsidies, nearly $50 billion in additional retirement provisions, and $35 billion more in tax breaks for caregivers. Meanwhile, proposed tax credits and subsidies for clean energy and electricity are about $165 billion lower than in the President’s budget. We’ll detail the source of these differences in a subsequent analysis.

The revenue increases apparently supported by the Ways and Means Committee are roughly $1.3 trillion smaller than proposals from the White House. Nearly $1.1 trillion of this difference comes on the corporate side, where the Ways and Means Committee calls for a lower top rate (26.5 percent as opposed to 28 percent) and less aggressive international tax rules while also forgoing the President’s proposal for a domestic minimum tax. The Ways and Means Committee also excludes most of the White House's proposals to close the tax gap through better information reporting, and it also does not address stepped-up basis of capital gains. However, unlike the White House, the Ways and Means Committee proposes to address the 20 percent pass-through deduction and make changes to the estate tax, impose a 3 percent surtax on income above $5 million, and increase tobacco and nicotine taxes. Estimating differences between the White House and Congressional scorekeepers also explain some of the difference.

Due to a combination of larger tax breaks and less revenue collection, the Ways and Means Committee's tax draft would net about $943 billion of revenue for other priorities, compared to $2.5 trillion from the White House proposals. That net revenue will be necessary, but likely not sufficient, to cover the cost of other spending proposals in reconciliation.

Read more options and analyses on our Reconciliation Resources page.