The Strategist

U.S. expects tax hikes for families with annual incomes over $1M

09/16/2021 - 06:16

American households with incomes of $1 million or more a year will pay 11% more in taxes in 2023 thanks to reforms proposed by Democrats. The Joint Committee on Taxation estimates they will pay an additional $96,000, and their average tax rate is projected to rise from 30.2 percent to 37.3 percent.

The Democrats' proposed tax reforms would raise the levy for households with incomes of $1 million or more by an average of about 11% in 2023. The increase is expected to reduce the tax burden on low- and middle-income families, CNBC reports. 

The Joint Committee on Taxation estimated that millionaire families will pay an additional $96,000 in 2023, and their average tax rate is projected to increase from 30.2% to 37.3%. The Democrats' tax policy would result in an average tax cut for all households with incomes under $200,000. For example, those with incomes between $20,000 and $30,000 would get an 87% reduction in federal taxes in 2023, which would amount to more than $18,700 in tax savings, estimates the committee.

The Joint Committee on Taxation does not analyze the tax consequences using the $400,000 income cap. However, for a group with income between $200,000 and $500,000 in 2023, the tax burden would increase - by 0.3 percent, or $2900. The increase is likely to fall entirely on those with incomes above $400,000.

House Democrats on Monday, Sept. 13, proposed a series of tax reforms aimed at corporations and wealthy households to help fund climate initiatives and a major expansion of the U.S. social safety net. Their proposals would raise the maximum marginal corporate tax rate to 39.6% and increase the maximum federal rate on long-term capital gains from 20% to 25%. They would also impose an additional 3% tax on households with at least $5 million in annual income.