June 30, 2021

The Impact of the Biden Administration’s Tax Proposals by State and Congressional District

The tax proposals contained in the Biden administration’s fiscal year 2022 budget, including the American Families Plan (AFP) and American Jobs Plan (AJP), would levy $2.3 trillion in new taxes on high-income earners and businesses and provide $998 billion in refundable tax credits to low- and middle-income households, for a net tax increase of $1.3 trillion (conventionally estimated over the budget window, 2022 to 2031). The resulting redistribution of income would involve many winners and losers, not only across different types of taxpayers but also geographically across the country.

To illustrate the geographic distribution of these tax changes, the Tax Foundation has launched an interactive map that allows users to see average tax changes in their state and congressional district over the period 2022 to 2031. The analysis is based on our conventional revenue estimates at the national level mapped to congressional districts using IRS data on individual tax returns for 2018 (see the following methodology detail).

 

The map and Table 1 indicate Biden’s proposals would raise taxes on the average taxpayer in most states throughout 2022 to 2031, with the largest average tax increases per filer occurring in the District of Columbia, Massachusetts, Connecticut, and New York, with tax increases exceeding $1,000 per filer in 2022 and $2,000 per filer in 2031. Several states would get a tax cut in the early part of the budget window, including Mississippi, Alabama, Oklahoma, and New Mexico, with tax cuts exceeding $400 per filer in 2022, due primarily to the proposed temporary expansions of the child tax credit (CTC) through 2025. After 2025, every state and the District of Columbia would see a tax increase.

In terms of congressional districts, slightly more than half would see a tax cut in 2022 and 2023, again due primarily to the temporarily expanded CTC, but in the last half of the budget window more than 96 percent of congressional districts would see a tax increase. The largest tax increases on average per filer are in high-income districts in and around the San Francisco Bay Area, Los Angeles, and New York City, with tax increases exceeding $8,000 per filer in 2022 and $10,000 per filer in 2031. The largest tax cuts on average per filer are in majority-Hispanic districts in California, Texas, and Arizona, with tax cuts exceeding $1,500 per filer in 2022, due primarily to the expanded CTC. In the last half of the budget window, when the expanded CTC expires, the largest tax cuts on average per filer are in and around Miami, where tax cuts exceed $300 per filer in 2031, due primarily to expanded premium tax credits.

Table 1. Average Tax Change per Filer per State by Year under Biden’s Tax Proposals (dollars)
State 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2022-2031
Alabama -509 -507 -408 -285 427 465 491 490 523 563 1,233
Alaska 27 56 166 307 741 786 819 820 861 908 5,470
Arizona -78 -25 102 242 832 893 939 953 1,008 1,073 5,935
Arkansas -287 -210 -69 63 745 809 860 880 940 1,012 4,745
California 755 851 1,047 1,236 1,485 1,592 1,675 1,710 1,807 1,923 14,095
Colorado 731 815 977 1,142 1,348 1,437 1,508 1,535 1,617 1,715 12,839
Connecticut 1,187 1,321 1,553 1,765 1,678 1,798 1,894 1,938 2,048 2,181 17,378
Delaware -4 41 159 298 739 789 827 834 879 933 5,479
District of Columbia 1,497 1,660 1,888 2,124 2,243 2,386 2,499 2,554 2,683 2,835 22,386
Florida 375 368 521 646 965 1,057 1,125 1,152 1,233 1,333 8,816
Georgia -286 -261 -135 9 691 747 788 796 846 906 4,089
Hawaii 134 199 313 450 836 886 926 935 983 1,038 6,687
Idaho -153 -174 -80 34 646 695 729 731 774 825 4,034
Illinois 432 522 691 861 1,165 1,248 1,313 1,339 1,415 1,506 10,491
Indiana -79 -17 93 230 769 818 855 864 908 959 5,380
Iowa -31 2 106 239 675 718 749 750 789 834 4,815
Kansas 74 110 231 369 848 907 951 962 1,016 1,079 6,543
Kentucky -304 -256 -155 -29 575 613 642 646 682 723 3,116
Louisana -350 -309 -201 -69 673 724 761 770 815 869 3,672
Maine -73 -116 -31 74 370 402 422 413 441 474 2,370
Maryland 351 429 579 754 1,094 1,163 1,215 1,230 1,292 1,365 9,452
Massachusetts 1,399 1,547 1,773 1,984 1,920 2,051 2,155 2,205 2,324 2,467 19,847
Michigan 103 161 281 419 831 887 930 942 993 1,053 6,590
Minnesota 434 523 667 833 1,122 1,190 1,243 1,260 1,323 1,396 9,977
Mississippi -908 -898 -815 -702 221 247 264 259 283 310 -1,761
Missouri -135 -120 -12 117 618 664 697 700 742 790 4,049
Montana 144 129 214 316 673 721 756 759 802 853 5,380
Nebraska -220 -267 -168 -46 428 465 489 481 513 551 2,216
Nevada 453 556 738 889 1,293 1,397 1,479 1,521 1,615 1,730 11,698
New Hampshire 613 688 844 1,008 1,072 1,141 1,195 1,211 1,275 1,351 10,389
New Jersey 724 825 1,001 1,200 1,395 1,483 1,551 1,575 1,655 1,749 13,147
New Mexico -403 -363 -268 -153 516 555 584 589 624 666 2,332
New York 1,062 1,215 1,429 1,626 1,784 1,910 2,010 2,062 2,177 2,314 17,612
North Carolina -288 -315 -206 -79 452 494 522 518 555 599 2,241
North Dakota 298 349 461 602 936 992 1,034 1,043 1,093 1,152 7,949
Ohio 52 120 237 374 813 865 906 918 966 1,023 6,259
Oklahoma -424 -425 -317 -192 486 528 558 559 596 641 1,999
Oregon 331 373 491 626 953 1,014 1,061 1,072 1,128 1,193 8,244
Pennsylvania 198 242 372 518 806 862 904 913 964 1,024 6,788
Rhode Island 264 333 461 608 920 978 1,023 1,036 1,090 1,153 7,853
South Carolina -290 -287 -187 -68 529 573 604 607 646 692 2,814
South Dakota 136 149 251 368 793 850 891 899 949 1,009 6,305
Tennessee -174 -164 -45 86 618 670 708 714 760 816 3,985
Texas -72 -8 146 309 933 1,006 1,061 1,079 1,145 1,223 6,818
Utah 3 16 153 301 893 960 1,009 1,021 1,080 1,151 6,587
Vermont 343 377 480 599 804 855 894 902 950 1,005 7,211
Virginia 230 264 405 571 923 985 1,031 1,039 1,095 1,161 7,689
Washington 813 934 1,127 1,319 1,486 1,584 1,663 1,696 1,787 1,894 14,306
West Virginia -361 -325 -236 -117 421 448 469 467 493 522 1,750
Wisconsin 118 129 240 373 704 753 787 790 833 883 5,598
Wyoming 672 677 849 981 1,142 1,243 1,320 1,351 1,441 1,553 11,275

Source: Tax Foundation General Equilibrium Model, June 2021.

Methodology

We estimate the geographic distribution of tax changes under Biden’s proposals using conventional revenue estimates at the national level generated by the Tax Foundation’s General Equilibrium Model which we then allocate to filers in congressional districts using data from the IRS Statistics of Income for individual tax returns in 2018. (Conventional revenue estimates do not include impacts on GDP and other economic aggregates.) The IRS data provides various tax characteristics broken down by congressional district (CD) and by nine classes of adjusted gross income (AGI), e.g., top category of $500,000 and above.

From the IRS data, certain tax characteristics are used to allocate to CDs the conventional national revenue estimates for each of Biden’s tax proposals, as described in Table 2, and then averaged by the number of filers in each CD. The accuracy of this analysis is limited by the extent of the IRS data at the CD level, particularly by the nine discrete AGI categories and top AGI category of $500,000 or more. For some of the proposals (for instance the increased capital gains tax), more accurate results could be reached by allocating the tax burden based on the earnings of those with an AGI of $1 million or more, but because the IRS groups everyone above $500,000 together, this is not possible. The impact of this approximation should not be significant as districts with a large number of taxpayers having an AGI of $500,000 or more are likely to have proportionally more taxpayers with an AGI of $1 million or more.

Most of the tax increases in Biden’s proposals are corporate tax increases, as specified in the American Jobs Plan, which we assume fall partly on capital income and partly on labor income, in accordance with several studies. In particular, we assume the corporate tax is initially borne mainly by capital income (90 percent in the first year), and over time the burden shifts to labor income until it is evenly split across capital and labor income in the long run (50 percent capital income and 50 percent labor income in the fifth year and beyond).

Table 2: Tax Characteristics Used to Allocate National Revenue Estimates to Congressional Districts
Tax Proposals in Biden’s Fiscal Year 2022 Budget Allocation Factor
Raise Top Individual Income Tax Bracket to 39.6 Percent CD’s share of national taxable income reported by those with AGI of $500,000 and above
Tax Unrealized Capital Gains over $1M at Death and Impose a 39.6 Percent Tax Rate on Capital Gains on Income Earned over $1M CD’s share of the national sum of capital gains and qualified dividends reported by those with AGI of $500,000 and above
Impose Net Investment Income Tax on Active Pass-through Income CD’s share of national pass-through business income
Make the Active Pass-through Loss Limitation Permanent CD’s share of national pass-through business income
Limit 1031 Exchanges to $500K in Gain CD’s share of national capital gains reported by those with AGI of $500,000 and above
Tax Carried Interest as Ordinary Income CD’s share of national capital gains reported by those with AGI of $500,000 and above
Permanent Full Refundability of Child Tax Credit (CTC) and Extend Expanded CTC Through 2025 CD’s share of national additional CTC claimed
Permanent Expansion of Earned Income Tax Credit (EITC) CD’s share of national EITC claimed
Permanent Expansion of Child and Dependent Care Tax Credit (CDCTC) CD’s share of national CDCTC claimed
Permanent Expansion of Premium Tax Credits CD’s share of national premium tax credit claimed
Raise the Federal Corporate Tax Rate from 21 Percent to 28 Percent; Raise the Tax Rate on Global Intangible Low-Tax Income (GILTI) and Tighten GILTI Rules; Repeal the Foreign Derived Intangible Income (FDII) Deduction; and Impose a 15 Percent Book Minimum Tax CD’s share of national labor income (wages and salaries) and capital income (capital gains, dividends, pass-through business income) weighted to reflect the economic incidence of the corporate tax, such that 90% of the incidence is on capital income (10% on labor income) in 2022; 80% is on capital income (20% on labor income) in 2023; 70% is on capital income (30% on labor income) in 2024; 60% is on capital income (40% on labor income) in 2025; and 50% is on capital income (50% on labor income) in 2026 and thereafter.

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Foreign Derived Intangible Income (FDII) is a special category of earnings that come from the sale of products related to intellectual property (IP). If a U.S. company holds IP in the U.S., such as patents or trademarks, and has sales to foreign customers based on that IP, the profits from those sales face a lower tax rate.

A pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates.

A refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit.

A tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat.

The federal child tax credit (CTC) is a partially refundable credit that allows low- and moderate-income families to reduce their tax liability dollar-for-dollar by up to $2,000 for each qualifying child. The credit phases out depending on the modified adjusted gross income amounts for single filers or joint filers.

A capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. Capital gains taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment.

Adjusted gross income (AGI) is a taxpayer’s total income minus certain “above-the-line” deductions. It is a broad measure that includes income from wages, salaries, interest, dividends, retirement income, Social Security benefits, capital gains, business, and other sources, and subtracts specific deductions.

A tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.

Taxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income.

The Earned Income Tax Credit (EITC) is a refundable tax credit targeted at low-income working families. The credit offsets tax liability, the total amount of tax debt owed by an individual, corporation, or other entity to a taxing authority like the Internal Revenue Service (IRS), and can even generate a refund, with EITC amounts calculated on the basis of income and number of children.