Topline Preliminary Estimates
- 10-Year Revenue (Billions) $2.5T Net Deficit Impact
- Long-run GDP -1.3%
- Long-Run Wages -1.0%
- Long-Run FTE Jobs -335,000
Tax Foundation General Equilibrium Model, March 2023.
President Biden’s Fiscal Year 2024 Budget outlines several major 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 that would add up to nearly $4.8 trillion in new taxes targeted at businesses and high-income individuals. After $833 billion 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, it would raise nearly $4.0 trillion in new taxes on net. Additionally, the Biden budget would expand spending by $1.4 trillion on net, leading to a $2.5 trillion reduction in the deficit through the end of 2033 on a conventional basis.
While the Biden budget aims its tax increases at corporations and high-income individuals, the economic effects of higher marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. s would be more widespread. Using the Tax Foundation’s General Equilibrium Model, we estimate the Biden budget would reduce long-run economic output by about 1.3 percent and eliminate 335,000 full-time equivalent jobs.
Our estimate likely understates the full economic harm from the budget because we do not model the effects of the 25 percent “billionaire minimum tax” on unrealized capital gains of high-net-worth taxpayers or the impact of certain international tax changes, such as the undertaxed profits rule (UTPR)The undertaxed profits rule (UTPR) allows a country to increase taxes on a business if that business is part of a larger company that pays less than the proposed global minimum tax of 15 percent in another jurisdiction. This is part of the Organisation for Economic Co-operation and Development’s (OECD) Global Tax Deal. .
The Office of Management and Budget (OMB) estimates the FY 2024 federal budget would reduce the debt-to-GDP ratio by about 7 percentage points from its baseline estimate of 117 percent by the end of 2033 to 110 percent. But by reducing economic output, we estimate that the budget would lead to a smaller improvement in the debt-to-GDP ratio on a dynamic basis, reducing it by about 4.5 percentage points by 2033. Forty years from now, we estimate the plan reduces the debt-to-GDP ratio by about 17 percentage points.
The actual deficit reduction is highly uncertain, as at least $1 trillion of the estimated reduction comes from untested revenue sources (e.g., the billionaire minimum tax and UTPR). Further, if certain policies discussed in the budget were extended, it could wipe out all of the projected deficit reduction, while still harming long-run economic output
|Gross Domestic Product (GDP)||-1.3%|
|Gross National Product (GNP)||-1.5%|
|Full-Time Equivalent (FTE) Jobs||-335,000|
|Source: Tax Foundation General Equilibrium Model, March 2023.|
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Major Tax Provisions
The budget would include the following major changes, beginning in 2024, unless otherwise noted:
Major business provisions modeled:
- Increase the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate from 21 percent to 28 percent (effective 2023)
- Quadruple the stock buyback tax implemented in the InflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. Reduction Act from 1 percent to 4 percent (effective 2023)
- Make permanent the excess business loss limitation for pass-through businessA 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. es
- Further limit the deductibility of executive compensation under Section 162(m)
- Increase the global intangible low-taxed income (GILTI)Global Intangible Low-Taxed Income (GILTI) is a special way to calculate a U.S. multinational company’s foreign earnings to ensure it pays a minimum level of tax. GILTI was adopted as part of the 2017 Tax Cuts and Jobs Act (TCJA) and can lead to high tax burdens on foreign profits, putting U.S. companies that operate abroad at a disadvantage. tax rate from 10.5 percent to 21 percent, calculate the tax on a jurisdiction-by-jurisdiction basis, and revise related rules (effective 2023)
- Repeal the reduced tax rate on foreign-derived intangible income (FDII)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.
Major individual, capital gains, and estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. provisions modeled:
- Expand the base of the net investment income tax (NIIT) to include nonpassive business income and increase the rates for the NIIT and the additional Medicare tax to reach 5 percent on income above $400,000 (effective 2023)
- Increase top individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rate to 39.6 percent on income above $400,000 for single filers and $450,000 for joint filers (effective 2023)
- Tax long-term capital gains and qualified dividends at ordinary income tax rates for taxable incomeTaxable 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. above $1 million and tax unrealized capital gains at death above a $5 million exemption ($10 million for joint filers)
- Limit retirement account contributions for high-income taxpayers with large individual retirement account (IRA) balances
- Tighten rules related to the estate tax
- Tax carried interest as ordinary income for those earning over $400,000
- Limit 1031 like-kind exchanges to $500,000 in gains
Major tax credit provisions modeled:
- Extend the American Rescue Plan Act (ARPA) Child Tax Credit (CTC)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 ,000 for each qualifying child. The credit phases out depending on the modified adjusted gross income amounts for single filers or joint filers. through 2025 and make the CTC fully refundable on a permanent basis (effective 2023)
- Permanently extend the ARPA Earned Income Tax Credit (EITC)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 earned income credit amounts calculated on the basis of income and number of children. expansion for workers without qualifying children (effective 2023)
- Permanently extend the ARPA premium tax credits expansion
We also modeled various miscellaneous provisions for corporations, pass-through businesses, and individuals, including several energy-related tax hikes largely pertaining to fossil fuel production. While the budget improperly characterizes them as subsidies, many are deductions for costs (or approximations of costs) incurred.
The budget also introduces two new taxes: a 30 percent tax on energy used in cryptocurrency mining operations and ending drawbacks for certain petroleum excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es when petroleum products are imported and later exported. It also includes changes to various corporate and noncorporate limitations and rules, smaller tax credits and exclusions, rules for digital assets, and other provisions.
Major provisions not modeled:
- Repeal the base erosion and anti-abuse tax (BEAT)The Base Erosion and Anti-Abuse Tax (BEAT) was adopted as part of the 2017 tax reform bill and is a tax meant to prevent foreign and domestic corporations operating in the United States from avoiding domestic tax liability by shifting profits out of the United States. and replace it with an undertaxed profits rule (UTPR) consistent with the OECD/G20 global minimum tax model rules
- Create a 25 percent “billionaire minimum tax” to tax unrealized capital gains of high-net-worth taxpayers
- Replace FDII with unspecified research & development (R&D) incentives
- Expand federal rules on drug pricing provisions
- Spending program changes
- Provide $29.1 billion in additional Internal Revenue Service (IRS)The Internal Revenue Service (IRS) is part of the U.S. Department of the Treasury and is responsible for enforcing and administering federal tax laws, processing tax returns, performing audits, and offering assistance for American taxpayers. funding, which the Treasury estimates would lead to an additional $105 billion of revenue on net as well as increased compliance and enforcement that will raise an additional $13.4 billion of revenue for a total increase of $118.6 billion from reducing the tax gapThe tax gap is the difference between taxes legally owed and taxes collected. The gross tax gap in the U.S. accounts for at least 1 billion in lost revenue each year, according to the latest estimate by the Internal Revenue Service (IRS) (2011 to 2013), suggesting a voluntary taxpayer compliance rate of 83.6 percent. The net tax gap is calculated by subtracting late tax collections from the gross tax gap: from 2011 to 2013, the average net tax gap was around 1 billion.
We estimate the tax changes in the president’s budget would reduce long-run GDP by 1.3 percent. Raising the corporate income tax rate to 28 percent is the largest driver of the negative long-run effects, reducing long-run GDP by 0.7 percent.
The budget would decrease American incomes (as measured by gross national product, or GNP) by 1.5 percent in the long run. The reduction in the budget deficit increases American incomes by about 0.01 percent but is offset by a greater reduction in incomes due to the tax increases.
The budget would reduce the capital stock by 2.4 percent, wages by 1.0 percent, and full-time equivalent employment by about 335,000 jobs.
Our economic estimates do not capture all of the tax changes included in the budget. We do not model R&D incentives that would replace FDII because they are unspecified. We also do not model the effects of repealing BEAT and replacing it with a UTPR nor of creating a 25 percent minimum tax on the unrealized capital gains of high-net-worth individuals because of data constraints as well as the high amount of uncertainty over how these provisions would be implemented, how taxpayers might respond, and how much revenue might be raised. The latter two items amount to roughly a $1 trillion tax hike over the budget window, offset by approximately $164 billion in unspecified R&D incentives—a net revenue increase of about $845 billion, or about 22 percent of the scored revenue raisers.
The net effect of the unmodeled provisions on the economy is likely to be substantially negative, but the magnitude depends on unspecified features and assumptions. For example, it remains unclear how much of the UTPR (and associated domestic minimum top-up tax) falls on U.S. domestic companies and their domestic investment, the impact taxing unrealized capital gains would have on entrepreneurship and innovation, and the overall effectiveness of the R&D incentive replacing FDII.
|Provision||Change in GDP||Change in GNP||Change in Capital Stock||Change in Wages||Change in Full-time Equivalent Jobs|
|Raise the top tax rate on individual income to 39.6%||Less than -0.05%||-0.1%||Less than -0.05%||Less than -0.05%||-43,000|
|Tax unrealized capital gains at death over $5 million and tax capital gains over $1 million at 39.6%||-0.1%||-0.4%||-0.3%||-0.1%||-30,000|
|Limit 1031 like-kind exchanges to $500,000 in gain||Less than -0.05%||Less than -0.05%||Less than -0.05%||Less than -0.05%||-1,000|
|Expand the net investment income tax base to active pass-through business income||-0.1%||-0.1%||-0.2%||-0.1%||-2,500|
|Raise the net investment income tax rate from 3.8% to 5% and raise the additional Medicare tax from 0.9% to 2.1%||-0.1%||-0.1%||-0.2%||Less than -0.05%||-86,000|
|Tax carried interest as ordinary income||Less than -0.05%||Less than -0.05%||Less than -0.05%||Less than -0.05%||-1,000|
|Impose new limits on large retirement account balances and increase minimum required distributions||Less than -0.05%||Less than -0.05%||Less than -0.05%||Less than -0.05%||-500|
|Tighten estate tax rules||Less than -0.05%||Less than -0.05%||Less than -0.05%||Less than -0.05%||-3,000|
|Misc. taxes on saving||Less than -0.05%||Less than -0.05%||Less than -0.05%||Less than -0.05%||-2,000|
|Raise the corporate tax rate from 21% to 28%||-0.7%||-0.6%||-1.3%||-0.6%||-129,000|
|Raise the stock buyback excise tax from 1% to 4%||-0.1%||-0.1%||-0.2%||-0.1%||-11,000|
|Changes to the international tax system||Less than -0.05%||Less than -0.05%||Less than -0.05%||Less than -0.05%||-5,000|
|Limit executive compensation deductibility under Section 162(m)||Less than -0.05%||Less than -0.05%||Less than -0.05%||Less than -0.05%||-1,000|
|Misc. corporate tax increases||-0.1%||-0.1%||-0.1%||-0.1%||-10,000|
|Make permanent the pass-through loss limitation and misc. pass-through tax increases||Less than -0.05%||Less than -0.05%||-0.1%||Less than -0.05%||-8,000|
|Make the American Rescue Plan Act EITC expansion permanent and make the CTC fully refundable||Less than -0.05%||Less than -0.05%||Less than -0.05%||Less than -0.05%||-2,000|
|Impact of spending and budget deficit||0%||Less than 0.05%||0%||0%||0|
|Total Economic Effect||-1.3%||-1.5%||-2.4%||-1.0%||-335,000|
|Source: Tax Foundation General Equilibrium Model, March 2023. Items may not sum due to rounding.|
The budget covers the 10-year budget window from 2024 through 2033, but it also includes several tax increases and two tax credit changes that would take effect in 2023 prior to the 10-year window. As such, we present a revenue table below that includes the change in revenues over the 11-year period covering 2023 as well as the traditional 10-year budget window.
Across the major provisions we modeled, we estimate the budget raises $2.4 trillion of tax revenue from corporations and $1.4 trillion from individuals from 2023 through 2033.
The budget includes $1 trillion of new tax revenues from two highly uncertain sources, the billionaire minimum tax and the UTPR, neither of which have been implemented in the U.S. or elsewhere, leaving little to go on for revenue estimation purposes. (Several countries are in the process of implementing global minimum tax rules including a UTPR, with revenue estimates ranging from an increase in corporate tax revenue of 2 percent to 12 percent, whereas the administration’s estimates indicate about a 13 percent increase in corporate tax revenue resulting from the UTPR alone and another 10 percent increase from changes to GILTI.)
The budget also includes another $119 billion in net revenue from additional IRS enforcement as estimated by OMB, less $164 billion in unspecified R&D incentives to replace FDII.
In total, we estimate the budget raises nearly $4.8 trillion in gross revenue from tax changes over the period 2023 to 2033.
Expanded tax credits reduce the gross revenue by $833 billion from 2023 through 2033, resulting in a net tax increase of just under $4 trillion over the period 2023 to 2033.
Outside of tax changes, the budget includes additional spending increases and cost savings including expanding the drug pricing provisions passed in the Inflation Reduction Act for a net increase in spending of about $1.4 trillion, summarized in Table 3.
After accounting for all changes in revenue and spending, we estimate the net effect of the budget would be to reduce the deficit by $2.5 trillion through 2033 on a conventional basis. On a dynamic basis, factoring in reduced tax revenues resulting from the smaller economy, the deficit reduction falls to just under $2 trillion from 2023 through 2033.
As noted, about $1 trillion of the deficit reduction is from highly uncertain sources of revenue. Furthermore, the budget discusses additional policies that would significantly reduce revenue, such as extending tax changes from the Tax Cuts and Jobs Act (TCJA)The Tax Cuts and Jobs Act in 2017 overhauled the federal tax code by reforming individual and business taxes. It was pro-growth reform, significantly lowering marginal tax rates and cost of capital. We estimated it reduced federal revenue by .47 trillion over 10 years before accounting for economic growth. for people making below $400,000 after 2025 when they otherwise expire. The budget does not, however, factor in the cost of such an extension. Similarly, the budget extends the larger Child Tax Credit through 2025, but further extending the policy would cost more than $130 billion per year, adding more than $1 trillion to the deficit by 2033. Continuing both of the policies past 2025 would wipe out most, if not all, of the budget’s projected deficit savings.
|Spending Item||Amount (Billions)|
|Childcare and early learning, health care, drug pricing, education, and housing,||-$873|
|Paid leave and home care||-$475|
|Other, including reductions in defense discretionary spending||$337|
|Total Spending Excluding Tax Credits||-$1,439|
|Expanded tax credits (includes expansion costs for 2023)||-$833|
|Total Spending Including Tax Credits||-$2,272|
|Source: Budget of the U.S. Government Fiscal Year 2024; Tax Foundation General Equilibrium Model. Note: negative signs denote a net increase in the federal budget deficit, while positive values indicate a net decrease in the federal budget deficit.|
|Provision (Billions of Dollars)||2023||2024||2025||2026||2027||2028||2029||2030||2031||2032||2033||2024-2033||2023-2033|
|Raise top tax rate on individual income to 39.6%||$45.0||$47.8||$48.7||$9.2||$10.0||$10.3||$10.7||$11.2||$11.6||$12.1||$12.5||$184.2||$229.2|
|Tax unrealized capital gains at death over $5 million and impose a 39.6% tax rate on capital gains over $1 million||$0.0||-$7.3||-$0.3||$4.7||$23.4||$25.2||$27.5||$30.1||$33.0||$36.1||$39.7||$212.1||$212.1|
|Expand the net investment income tax base to active passthrough income||$25.3||$24.9||$25.5||$25.7||$28.1||$29.2||$30.5||$31.8||$33.1||$34.4||$35.9||$299.2||$324.5|
|Raise the net investment income tax rate from 3.8% to 5%||$13.6||$10.2||$10.9||$11.3||$13.8||$14.3||$14.9||$15.5||$16.2||$16.9||$17.6||$141.6||$155.2|
|Raise the additional Medicare tax from 0.9% to 2.1%||$16.1||$16.1||$16.6||$16.8||$18.5||$19.3||$20.2||$21.2||$22.2||$23.2||$24.4||$198.6||$214.6|
|Make permanent the limit on excess business losses for passthrough firms||$0.0||$0.0||$1.7||$2.3||$5.0||$13.0||$13.3||$10.1||$9.5||$9.3||$9.3||$73.7||$73.7|
|Limit 1031 like-kind exchanges to $500K in gain||$0.0||$1.1||$1.8||$1.8||$1.9||$1.9||$2.0||$2.1||$2.1||$2.2||$2.2||$19.1||$19.1|
|Tax carried interest as ordinary income||$0.0||$0.6||$0.7||$0.7||$0.7||$0.7||$0.7||$0.7||$0.7||$0.7||$0.7||$6.7||$6.7|
|Create new limitations on high-income taxpayers with large retirement account balances and increasing minimum required distributions||$0.0||$8.1||$5.2||$2.9||$1.7||$1.1||$0.9||$0.7||$0.7||$0.7||$0.6||$22.7||$22.7|
|Tighten estate and gift tax rules||$0.0||$0.0||$4.6||$4.9||$7.4||$8.0||$8.4||$8.9||$9.5||$10.1||$10.8||$72.6||$72.6|
|Miscellaneous tax increases on passthrough firms*||$0.0||$5.0||$6.1||$6.5||$6.9||$7.3||$7.7||$8.0||$8.3||$8.6||$8.9||$73.4||$73.4|
|Miscellaneous tax increases on saving**||$0.0||$5.5||$2.1||$2.6||$3.0||$3.2||$3.5||$3.7||$4.0||$4.3||$3.4||$35.3||$35.3|
|Total Individual Revenue||$100.0||$111.9||$123.7||$89.4||$120.5||$133.7||$140.2||$144.0||$150.9||$158.6||$166.0||$1,339.0||$1,439.0|
|Raise corporate tax rate to 28%||$92.5||$94.7||$105.3||$119.7||$127.1||$127.8||$128.4||$129.8||$132.2||$136.6||$139.3||$1,240.9||$1,333.4|
|21% GILTI minimum tax rate and other GILTI changes||$22.5||$39.5||$42.5||$32.5||$34.0||$35.4||$36.6||$37.9||$39.4||$41.2||$42.2||$381.2||$403.6|
|Section 265 changes and world interest limitation||$0.0||$13.0||$13.9||$14.7||$15.5||$16.4||$17.2||$17.9||$18.6||$19.5||$20.1||$166.8||$166.8|
|4% excise tax on stock buybacks||$10.2||$9.7||$12.3||$13.5||$16.8||$19.7||$20.1||$20.8||$22.6||$26.1||$23.4||$185.1||$195.3|
|Modification to 162(m) limit on deduction of excessive employee remuneration||$0.0||$2.5||$0.6||$0.5||$1.7||$2.2||$1.8||$1.5||$1.2||$1.2||$1.3||$14.5||$14.5|
|Miscellaneous corporate tax increases***||$0.0||$6.8||$7.6||$8.2||$8.8||$9.5||$10.6||$11.8||$13.1||$14.4||$11.5||$102.2||$102.2|
|Total Corporate Revenue||$125.2||$186.5||$203.8||$202.8||$218.2||$225.8||$229.7||$234.9||$242.9||$255.4||$254.4||$2,254.4||$2,379.6|
|Other Revenue Changes (Not Scored by Tax Foundation )|
|Impose a 25% minimum tax on unrealized gains for taxpayers with net wealth over $100 million||$0.0||$10.9||$45.0||$49.6||$51.8||$52.4||$52.0||$50.2||$45.5||$44.3||$43.2||$445.0||$445.0|
|Levy an undertaxed profits rule on large multinational firms||$0.0||$10.1||$46.8||$66.3||$65.8||$64.8||$63.4||$62.8||$62.2||$61.4||$60.6||$564.0||$564.0|
|Net revenue from IRS budget changes||$0.0||$1.2||$1.1||$1.3||$1.4||$1.4||$1.4||$1.5||$13.3||$51.4||$45.1||$119.0||$119.0|
|Replace FDII with an incentive for R&D****||$0.0||-$20.2||-$21.7||-$13.6||-$14.4||-$14.8||-$15.0||-$15.3||-$15.8||-$16.4||-$16.6||-$163.7||-$163.7|
|Total Other Revenue Changes||$0.0||$1.9||$71.3||$103.6||$104.7||$103.8||$101.8||$99.1||$105.2||$140.7||$132.2||$964.3||$964.3|
|Gross Revenue Total||$225.1||$300.3||$398.7||$395.9||$443.4||$463.3||$471.7||$478.1||$499.1||$554.6||$552.7||$4,557.8||$4,782.9|
|Reinstate the expanded ARPA child tax credit through 2025 and make permanent full CTC refundability||-$128.3||-$132.5||-$135.2||-$2.5||-$2.4||-$2.3||-$2.2||-$2.1||-$2.1||-$2.0||-$1.9||-$285.1||-$413.4|
|Make permanent the expanded ARPA earned income tax credit*****||-$13.7||-$13.9||-$15.0||-$15.4||-$15.7||-$15.8||-$16.0||-$16.0||-$16.1||-$16.1||-$16.1||-$156.0||-$169.7|
|Make permanent the expanded ARPA premium tax credits||$0.0||$0.0||-$4.1||-$18.0||-$22.5||-$23.3||-$23.6||-$23.1||-$23.8||-$25.0||-$19.5||-$183.0||-$183.0|
|Miscellaneous tax credits******||$0.0||-$0.4||-$1.8||-$3.5||-$4.9||-$6.6||-$8.2||-$9.5||-$10.7||-$12.0||-$9.7||-$67.3||-$67.3|
|Total Tax Credits||-$142.0||-$146.8||-$156.1||-$39.3||-$45.5||-$48.0||-$49.9||-$50.8||-$52.7||-$55.1||-$47.2||-$691.5||-$833.4|
|Total Conventional Revenue||$83.1||$153.5||$242.6||$356.5||$397.9||$415.2||$421.8||$427.3||$446.4||$499.5||$505.5||$3,866.3||$3,949.4|
|Total Dynamic Revenue||$55.0||$123.4||$203.8||$330.0||$362.7||$372.8||$372.2||$370.4||$381.9||$424.9||$423.5||$3,365.6||$3,420.6|
|Mandatory and discretionary spending changes (net of spending reductions)||$0.0||-$97.6||-$142.5||-$160.0||-$182.9||-$169.8||-$186.6||-$151.9||-$153.3||-$125.9||-$68.5||-$1,439.0||-$1,439.0|
|Conventional Deficit Impact (before interest costs)||$83.1||$55.9||$100.1||$196.5||$215.0||$245.4||$235.1||$275.4||$293.1||$373.6||$437.0||$2,427.3||$2,510.4|
|Dynamic Deficit Impact (before interest costs)||$55.0||$25.8||$61.3||$170.0||$179.8||$203.0||$185.5||$218.5||$228.6||$299.0||$355.0||$1,926.6||$1,981.6|
Source: Budget of the U.S. Government Fiscal Year 2024, Tax Foundation General Equilibrium Model, March 2023.
*Note: “Miscellanious passthrough tax increases include rules changing depreciation deduction recapture for real estate transactions and limitations on basis shifting for partnerships.
**Note: “Miscellanious tax increases on saving include changes to tax rules on digital assets and a new tax on electricity consumption when mining digital assets.
***Note: “Miscellanious tax increases on corporations include increased taxes on fossil fuel production, loss limitations in liquidation transactions, changes to divisive reorgnizations, changes to REIT taxes, new rules for corporate affiliation tests, and taxing certain corproate distributions as dividends.
**** Note: The Treasury Greenbook for FY 2024 proposes using the revenue from repealing FDII to “incentivize R&D in the United States more directly and effectively,” and leaves the question of whether it is a tax or spending incentive ambiguous.
*****Note: Our estimates of permanent refundability for the Child Tax Credit do not incorporate a revenue effect for nonfilers.
*****Note: “Miscellanious tax credits include an expanded low income housing tax credit, the proposed neighborhood homes tax credit, a permanent new markets tax credit, changes to the work opportunity tax credit and adoption tax credit, and an employer-provided tax credit for childcare services.
The budget would raise marginal income tax rates faced by higher earners and corporations while expanding tax credits for lower-income households. The distributional results that follow do not include the impact of drug pricing provisions, the 25 percent billionaire minimum tax, the undertaxed profits rule, IRS enforcement, or spending program changes on after-tax incomeAfter-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize after-tax income. .
The proposals would increase the after-tax income of the bottom quintile by about 12.6 percent in 2024 on a conventional basis, largely due to expanded tax credits, and all groups except the top quintile would see increases in after-tax income in 2024. The top 1 percent of earners would experience a 6.0 percent decrease in after-tax income.
After the expanded CTC expires, the bottom quintile would see a smaller 4.5 percent increase in after-tax income in 2033 on a conventional basis while the top three quintiles would see decreases in their after-tax incomes. The top 1 percent would see a 6.4 percent decrease in after-tax income.
On a long-term dynamic basis, the smaller economy reduces after-tax incomes relative to the conventional analysis. On average, tax filers in the top four quintiles would experience a drop in after-tax incomes, while the bottom quintile would still see an increase, albeit reduced to 2.8 percent, driven by the permanently expanded EITC, expanded premium tax credits, and permanent CTC refundability.
|Income Group||Conventional, 2024||Conventional, 2033||Dynamic, Long Run|
|0% – 20.0%||12.6%||4.5%||2.8%|
|20.0% – 40.0%||4.1%||0.4%||-1.2%|
|40.0% – 60.0%||1.2%||-0.8%||-2.3%|
|60.0% – 80.0%||0.2%||-0.9%||-2.5%|
|80.0% – 100%||-2.5%||-2.7%||-4.5%|
|80.0% – 90.0%||-0.6%||-1.0%||-2.6%|
|90.0% – 95.0%||-1.1%||-1.2%||-2.7%|
|95.0% – 99.0%||-1.8%||-1.7%||-3.5%|
|99.0% – 100%||-6.0%||-6.4%||-8.6%|
Note: We do not model the distribution of miscellaneous tax credits or unmodeled provisions listed above.
Source: Tax Foundation General Equilibrium Model, March 2023. Items may not sum due to rounding.
We use the Tax Foundation General Equilibrium Tax Model to estimate the impact of tax policies, including recent updates allowing detailed modeling of U.S. multinational enterprises. The model produces conventional and dynamic revenue and distributional estimates of tax policy. Conventional estimates hold the size of the economy constant and attempt to estimate potential behavioral effects of tax policy. Dynamic revenue estimates consider both behavioral and macroeconomic effects of tax policy on revenue. The model also produces estimates of how policies impact measures of economic performance such as GDP, GNP, wages, employment, capital stock, investment, consumption, saving, and the trade deficit.
Note, however, our conventional and dynamic estimates for the stock buyback tax do not account for behavioral shifting from buybacks to dividends, which would also shift the individual income tax base from capital gains to dividends.
Regarding the budget’s proposed changes to the GILTI regime, we modeled most of the major changes including the 75 percent GILTI inclusion rate, country-by-country application, the reduction in the foreign tax credit (FTC) haircut to 5 percent, elimination of the qualified business asset investment (QBAI) exemptionQualified Business Asset Investment (QBAI) is a 10 percent tax exemption for U.S. multinationals based on the value of buildings, machinery, or equipment. The QBAI exemption is part of the Global Intangible Low-Tax Income (GILTI) tax base, a measure that discourages companies from shifting profits out of the U.S., and part of the calculation for Foreign Derived Intangible Income (FDII). , and elimination of the FOGEI exclusion. We did not model the changes allowing carryforward of GILTI FTCs and losses, repeal of the high-tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax. for subpart F, or the tax increases on dual capacity taxpayers.Share