The Tax Policy Center has published a new distributional analysis the American Rescue Plan (ARP) that incorporates several relatively minor tax provisions that were not included in TPC’s original estimates. The latest analysis shows slightly larger tax cuts for most households.
The updated estimates also correct a small error in TPC’s earlier analysis of the effects of the major individual income tax provisions of the bill. In that analysis, TPC underestimated the number of households who do not normally file tax returns but now will claim the expanded earned income tax credit (EITC). That change also slightly increases the tax savings of lower income households. The corrected tables are here.
Like the estimates TPC published earlier this week, the new estimates include the ARP’s major individual income tax changes such as the economic impact payments (EIPs aka stimulus checks) and major revisions to the Child Tax Credit (CTC), the earned income tax credit (EITC) , and the child and dependent care tax credit (CDCTC).
The new analysis also includes the bill’s payroll tax credit for firms that continue employer-sponsored health insurance coverage for laid-off workers; the lookback rule for the EITC; expanded credits for paid sick and family leave, and the enhanced Employee Retention Credit. The new analysis also includes the repeal of worldwide interest allocation rules for corporations.
However, it does not include the federal income tax exemption for some 2020 unemployment benefits or the one-year extension of the limit on excess business losses. TPC analyzed only tax year 2021 and those provisions apply to other years.
The new estimates show slightly larger overall tax cuts. At the same time, by including the corporate interest change (which raises corporate taxes), it results in a slight decline in after-tax income for very high-income households. TPC allocates most of the burden of corporate tax increases to shareholders, and lesser shares to other recipients of capital income and workers.
The results of TPC’s expanded analysis are very similar to the initial, more limited analysis. It estimates the average tax cut for 2021 would be $3,360 instead of $3,060, about 4.1 percent of after-tax income instead of 3.8 percent.
The lowest-income households, those making $25,000 or less, would get an average tax cut of $2,960, or 21.1 percent of after-tax income, instead of $2,850 or 20.4 percent.
For middle-income households (those making between $51,000 and $91,000 in 2021) the change also is modest. With the additional provisions, the new analysis estimates the average tax cut for a middle-income household would be $3,720, or 6 percent of after-tax income. In TPC’s earlier analysis of the major individual income tax measures only, their average tax cut would be $3,350, raising their after-tax incomes by 5.5 percent.
TPC’s estimates for very high-income households are effectively unchanged. After-tax incomes for those in the top 0.1 percent (who will make about $3.5 million or more this year) would decline by about $970, largely due to their share of the repeal of corporate interest allocation rules.
