One way to put the House Build Back Better Act’s tax increases in historical context is to compare them to previous 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. increases as a share 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 fund the Vietnam War in 1968.
According to a report from the Treasury Department, between 1940 and 2012, Congress enacted 21 major tax bills that increased federal tax revenues over at least one fiscal year. Of these 21 revenue-raising tax bills, the five largest tax increases since 1940 raised annual federal revenue in the range of 1.33 percent of GDP up to 5.04 percent of GDP (see accompanying table).
The Build Back Better Act tax proposals include about $2.06 trillion in corporate and individual tax increases on a conventional basis over the next 10 years, which is worth about 0.72 percent of GDP. Looking at the first year alone, it raises about $175.1 billion of gross revenue, or about 0.76 percent of GDP. Under both measures, the proposal would be the largest gross tax increase since the Revenue and Expenditure Control Act of 1968.
Notably, the revenue raisers in the House tax package would also surpass the 1993 tax increases, which raised revenue by 0.36 percent of GDP in the first fiscal year and averaged 0.63 percent of GDP over its first four fiscal years. Overall, the House tax package would amount to the seventh largest tax increase since 1940 on a gross basis.
The House tax package is unique from other tax increases in that its gross tax increases are offset by nearly half due to about $1 trillion in expanded 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. s over 10 years. The net revenue is worth about $1.06 trillion, or 0.37 percent of GDP, over the next 10 years. On net terms, the House tax package would be close to the revenue raised in the 1986 and 1990 tax increases.
The budget resolution passed in both chambers of Congress permits up to $3.5 trillion in new spending. If the spending were financed entirely from tax increases, it would raise about 1.22 percent of GDP over the next 10 years. That would rival the tax increases used to finance World War II, which ranged from 1.16 percent of GDP in 1943 to about 5 percent of GDP in 1942, and the Korean War, which ranged from 1.33 percent in 1950 to 1.52 percent in 1951.
|Tax Bill||Revenue Effect as a Percentage of GDP (first fiscal year unless otherwise indicated)|
|Revenue Act of 1942||5.04%|
|Revenue Act of 1941||2.20%|
|Revenue and Expenditure Control Act of 1968||1.74%|
|Revenue Act of 1951||1.52%|
|Revenue Act of 1950||1.33%|
|$3.5 Trillion in Gross Revenue Raisers (2022-2031)||1.22%|
|Current Tax Payment Act of 1943||1.16%|
|House BBBA Gross Revenue Raisers in 2022||0.76%|
|House BBBA Gross Revenue Raisers (2022-2031)||0.72%|
|Crude Oil Windfall Profit Tax Act of 1980||0.44%|
|Tax Equity and Fiscal Responsibility Act of 1982||0.53%|
|Tax Reform Act of 1986||0.41%|
|Omnibus Budget Reconciliation Act of 1990||0.41%|
|House BBBA Net Revenue Raised (2022-2031)||0.37%|
Note: “Gross Revenue Raisers” includes the individual and corporate tax increases within the Build Back Better Act, while “Net Revenue Raised” includes those 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 to the Budget Outlook, 2021 to 2031,” July 2021; Tax Foundation General Equilibrium Model, September 2021; and author calculations.
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