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

The taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. 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 creditA 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 (EITC). s 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 result in an average tax increase 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 creditA 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. (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 incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” (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 taxA 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. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. ), 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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