Under current law, C corporations subject to the federal corporate income tax may deduct all state and local income, property, and/or sales taxes from their federal taxable income. By contrast, individual taxpayers are limited to a state and local tax (SALT) deduction of $10,000.
This proposal would extend the $10,000 limitation to corporations’ state and local tax (C-SALT) deductions.
Under current law, a 1 percent excise tax is imposed on repurchases of stock (buybacks) by publicly traded corporations and certain affiliates. The amount of repurchases subject to the tax is reduced by the amount of stock issued to the public, resulting in a tax on net repurchases. Corporations with total repurchases of $1 million of less are exempt from the tax.
These two alternative proposals would increase the excise tax rate on stock repurchases from 1 percent to either 2 percent or 4 percent.
Under current law, qualified taxpayers receive a refundable Premium Tax Credit (PTC) to purchase health insurance through the marketplaces established by the Affordable Care Act. The PTC is advanceable, meaning that taxpayers may choose to receive advance payments of the PTC each month to cover payments of monthly health insurance premiums. The amount of PTC received depends on family size and income; for the advance PTC (APTC), the taxpayer must estimate these factors for the current year ahead of time. When the taxpayer files their return at the end of the year, the amount of APTC received based on estimated income is reconciled with the amount they should have received based on actual income.
If the taxpayer’s actual income is greater than their estimated income (or their family is smaller) and they received too much in APTC payments during the year, the excess credit amount generally must be repaid when the taxpayer files their return. However, for taxpayers with incomes below 400 percent of the federal poverty line (FPL), the amount of repayment is capped at certain dollar limits. For most unmarried individuals, the applicable limits in 2024 are $1,575 for individuals with incomes between 300 and 400 percent of the FPL, $950 for individuals between 200 and 300 percent of the FPL, and $375 for individuals below 200 percent of the FPL.
This proposal would eliminate the limits on excess credit amounts required to be repaid by taxpayers. All taxpayers would be liable for the full amount of any excess payments received, regardless of income.
Under current law, shareholders in a Controlled Foreign Corporation (CFC) can deduct 50 percent of their Global Intangible Low-Taxed Income (GILTI) from taxable income. This deduction results in GILTI being taxed at a lower effective tax rate than other income. The reduced rate on GILTI means that multinationals serving the U.S. market may have an incentive to route their activities through a CFC, a practice referred to as “round-tripping.” Profits from sales to the U.S. by a CFC could be treated as GILTI and taxed at the lower rate. If those same profits were earned directly by the domestic corporation, they would be taxed at the full 21 percent statutory rate.
This proposal would limit the deduction to GILTI derived from serving foreign markets. GILTI derived from serving the U.S. market would not be eligible for the deduction and would be taxed at the statutory rate of 21 percent. Income is identified as either foreign-derived or U.S.-derived following the same definitions used under current law to determine Foreign-Derived Intangible Income (FDII): foreign-derived income is any income from the sale of property to a non-U.S. person for foreign use, or from the provision of services to persons outside the U.S.
In recent campaign speeches, Vice President Kamala Harris has spoken about raising the top marginal rate on long-term capital gains. Official campaign sources have yet to release sufficient details about the proposal to model it fairly and effectively. However, reporting on the proposal suggests that the yet-to-be-detailed plan would add a new top rate for long-term capital gains, taxing them at 28% for filers with more than $1 million of income. Reporting also indicates that the Harris campaign is in favor of raising the net investment income tax (NIIT) from 3.8% to 5% for filers with more than $1 million of income, this has also not yet been independently confirmed by official campaign sources. Together, these proposals would amount to an all-in marginal tax rate of 33% on long-term capital gains for high income filers. Notably, this is below the all-in 44.6% top marginal rate for capital income in President Biden’s proposed 2025 budget.
Vice President Harris recently announced a plan that would increase the Child Tax Credit in two ways, increase the “childless EITC,” and extend the 2021 expansion of Affordable Care Act premium subsidies. As shown in Table 1 below, we estimate a total cost of $2.1 trillion over 10 years. (PWBM will soon post updates of the Harris Campaign proposals. Check back soon.)
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.