Personal finance

Millionaire taxes would increase 11% in 2023 under House Democrat plan

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Households earning $1 million or more would see their taxes rise by almost 11%, on average, in 2023 due to reforms proposed by House Democrats, according to Joint Committee on Taxation estimates published Tuesday.

They’d pay an extra $96,000 that year, and their average tax rate would increase to 37.3% from 30.2%, according to the projections.

Meanwhile, Democrats’ policies would give an average tax cut to all households with incomes less than $200,000.

For example, those with $20,000 to $30,000 of income would get an 87% reduction in their federal taxes in 2023, amounting to more than $18,700 of tax savings, according to the Committee estimates.

“The president campaigned on ‘No one under $400,000 gets a tax increase,'” according to James Hines Jr., an economics professor at the University of Michigan and research director at its Office of Tax Policy Research. “This has tightly constrained every policy decision [Democrats] have made. They want to be able to say they lived up to that promise.”

As is customary, the Joint Committee on Taxation doesn’t break down tax impacts using a $400,000 income demarcation.

However, they do so for the $200,000 to $500,000 income group. This cohort would see its tax bill rise slightly — by 0.3%, or $2,900 — in 2023, according to the estimates.

That increase is likely entirely shouldered by those with more than $400,000 of income, Hines said.  

Tax policies

House Democrats proposed a slew of tax reforms on Monday aimed at corporations and wealthy households to help fund climate initiatives and a significant expansion of the U.S. safety net.

Their legislation would raise the top marginal income tax rate to 39.6% and increase the top federal rate on long-term capital gains to 25% from 20%. It would also impose a 3% surtax on households with at least $5 million of annual income, among other measures.

Corporate and individual tax provisions would raise more than $2 trillion over a decade, according to the Joint Committee on Taxation.

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Democrats would use some of those tax savings to preserve the expanded child tax credit created by the American Rescue Plan this year. Monthly payments of that expanded tax break started in July.

They would also fund expansions of childcare, paid leave, pre-K education and community college, public health insurance plans, green energy incentives and other household tax credits.

House Democrats’ legislation proposes a temporary expansion of the child tax credit through 2025.

At that time, some low- and mid-income households would see a slight increase in their tax bills — ranging from less than 1% to about 1.5% on average in 2027, according to the Committee — if lawmakers can’t further extend the tax break. (The extent to which the child tax credit’s expiration factors into this projected increase is unclear, however.)

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