One way to put the House Build Back Better Act tax increases in their historical context is to compare them to previous tax increases as a percentage of gross domestic product (GDP). Compared to previous tax changes, this House tax plan would impose the largest gross tax increase since President Lyndon Johnson’s tax hike to help finance the Vietnam War in 1968.
According to a Treasury Department report, between 1940 and 2012, Congress enacted 21 major tax bills that increased federal tax revenue over at least one fiscal year. Of these 21 revenue-generating tax bills, the five largest tax increases since 1940 have increased annual federal revenues in the range of 1.33% of GDP to 5.04% of GDP (see attached table ).
The Build Back Better Act tax proposals include roughly $ 2.06 trillion in corporate and personal tax increases on a conventional basis over the next 10 years, which is roughly 0.72% of GDP. Considering only the first year, it generates about $ 175.1 billion in gross revenue, or about 0.76% of GDP. Under these two measures, the proposal would be the largest gross tax increase since the Income and Expenditure Control Act 1968.
Notably, the revenue increases from the House tax package would also exceed the 1993 tax increases, which increased revenue by 0.36% of GDP in the first fiscal year and 0.63% of GDP on average in the first fiscal year. during its first four exercises. Overall, the House tax package would represent the seventh largest tax increase since 1940 on a gross basis.
The House’s tax package is unique compared to other tax increases in that its gross tax increases are offset by almost half due to around $ 1 trillion in extended tax credits out of 10. years. Net income stands at around $ 1.06 trillion, or 0.37% of GDP, over the next 10 years. In net terms, the House’s tax package would be close to the revenue generated during the 1986 and 1990 tax increases.
The budget resolution passed by both houses of Congress authorizes up to $ 3.5 trillion in new spending. If spending were fully funded by tax increases, it would increase by about 1.22% of GDP over the next 10 years. This would rival the tax increases used to finance World War II, which ranged from 1.16% of GDP in 1943 to about 5% of GDP in 1942, and the Korean War, which ranged from 1.33% in 1950 to 1.52% in 1951.
|Tax invoice||Effect on income as a percentage of GDP (first year, unless otherwise indicated)|
|1942 Income Act||5.04%|
|1941 Income Act||2.20%|
|Revenue and Expenditure Control Act 1968||1.74%|
|Income Act 1951||1.52%|
|1950 Income Act||1.33%|
|$ 3.5 trillion in gross revenue increases (2022-2031)||1.22%|
|Current Act on the Payment of Taxes of 1943||1.16%|
|BBBA House Gross Income Rise in 2022||0.76%|
|BBBA house gross income increases (2022-2031)||0.72%|
|Crude Oil Windfall Profits Tax Act 1980||0.44%|
|Tax Fairness and Fiscal Responsibility Act 1982||0.53%|
|1986 Tax Reform Law||0.41%|
|1990 Omnibus Budget Reconciliation Law||0.41%|
|BBBA House Net Income Rise (2022-2031)||0.37%|
Note: “gross income increases” include personal and corporate tax increases under the Build Back Better Act, while “increased net income” includes tax changes net of expanded tax credits.
Sources: Jerry Tempalski, “Revenue Effects of Major Tax Bills Updated Tables for all 2012 Bills”, Office of Tax Analysis, Department of the Treasury; Congressional Budget Office, “An Update on the Budget Outlook, 2021 to 2031,” July 2021; General equilibrium model of the Fiscal Foundation, September 2021; and the author’s calculations.
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