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Americans earning $200,000 or more flocking to these states

Affluent Americans have flocked to Sun Belt states since the pandemic started, with Florida leading the pack by a wide margin, a new analysis reveals.

Looking at migration patterns between 2019 and 2020, the personal finance website SmartAsset ranked all 50 states plus the District of Columbia based on the net migration of households earning $200,000 or more.

Of the 10 states with the largest influx of high-earning households, nine are located in the Sun Belt, including the six-highest ranked states, starting with Florida. For this analysis, SmartAsset defines the Sun Belt as the general geographic region stretching across the Southeast and Southwest.

Here’s a look at the top 10 states, as well as the net number of high-earning households added to each state.

  1. Florida: 20,263
  2. Texas: 5,356
  3. Arizona: 5,268
  4. North Carolina: 4,713
  5. South Carolina: 3,967
  6. Tennessee: 2,743
  7. Colorado: 2,624
  8. Snowfall: 2,331
  9. Idaho: 2,055
  10. Utah: 1,503

Factors leading to the migration to the Sun Belt include lower taxes and warmer weather, as well as more people retiring during the pandemic.

Florida was by far the most popular destination, as the inflow of high earners was nearly four times that of Texas, the next highest-ranked state. Four of the top 10 states — Florida, Texas, Tennessee and Nevada — don’t have taxes at the state level.

The gains made in the Sun Belt come at the expense of mostly Northeastern states. The biggest losers were California and New York, with nearly 20,000 high-earners leaving each state. That’s more than twice the amount of households as Illinois, the third-worst ranked state.

However, it’s worth noting that the states at the bottom of the ranking still have a higher-than-average percentage of households earning over $200,000. The 10 lowest-ranked states’ share of high earners averages 8.79%, compared to 6.82% for all tax filers nationally.

And while many of these states have a high cost of living, they also tend to have higher median incomes than Sun Belt states.

To calculate the ranking, SmartAsset examined households with adjusted gross incomes of $200,000 or more, comparing the location reported in their 2019 tax return with the new location reported in their 2020 tax return. Each state was then ranked by the net inflow of high-earning households.

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Soldier’s assault suit against officers can proceed to trial

NORFOLK, Va. — A US Army lieutenant who was pepper-sprayed, struck and handcuffed during a traffic stop in Virginia can present his claims of false imprisonment and assault and battery to a jury, a federal judge has ruled.

But the summary judgment Tuesday said federal immunity shield laws the two officers involved from facing Caron Nazario’s claims that they violated the Black and Hispanic soldier’s constitutional protections against excessive force and unreasonable seizure, as well as his right to free speech by allegedly threatening him with arrest if I have complained about their behavior.

US District Judge Roderick C. Young also ruled that the officer who initially pulled Nazario over is liable for illegally searching for a gun in the soldier’s SUV in violation of the US Constitution and Virginia law, leaving the question of damages on that point up to a jury. Nazario had a concealed carry permit.

The December 2020 traffic stop of the uniformed military officer in the small town of Windsor drew national attention and outrage after Nazario sued in April 2021, citing police body camera images and his cellphone video of the encounter. He was never charged with a crime.

Nazario had been driving home in the dark from his duty station when Officer Daniel Crocker radioed that he was attempting to stop a vehicle with no rear license plate and tinted windows, the lawsuit says. Body camera video later showed that a temporary tag was taped to the inside of the rear window.

“It appeared to Lt. Nazario that there was no good location in the immediate vicinity to stop safely. So, for the benefit of the officer’s safety and his own, Lt. Nazario continued slowly down US 460,” the lawsuit says. Nazario drove below the posted speed limit for less than a mile until he reached the well-lit parking lot of a BP gas station, it says.

Crocker said the driver was “eluding police” and he considered it a “high-risk traffic stop,” according to a report cited in the lawsuit. Another officer, Joe Gutierrez, was driving by and joined him.

The lawsuit says both officers escalated the situation by immediately pointing their guns at Nazario and trying to pull him out of the vehicle while he kept his hands in the air. Gutierrez pepper-sprayed Nazario multiple times as the officers yelled for him to get out.

At one point, Nazario said he was afraid to get out, to which Gutierrez replied: “You should be.”

When Nazario did get out and ask for a supervisor, Gutierrez responded with “knee-strikes” to his legs, knocking him to the ground, where the two officers struck him multiple times and then handcuffed and interrogated him, the lawsuit says.

Officer Gutierrez was later fired for failing to follow department policy during the stop. A special prosecutor concluded late last month that Gutierrez should not be criminally charged under Virginia law, but should be investigated by the US Justice Department for potential civil rights violations.

The federal judge ruled Tuesday that the officers had likely caused Nazario to pull over for an improperly displayed license plate, and to charge him with eluding police as well as obstruction of justice and failure to obey when he refused to exit the vehicle.

The judge also wrote that Nazario’s claims under the US Constitution of unlawful seizure and excessive force present questions about the officers’ conduct that could be put before a jury. But Young threw out the allegations under the federal doctrine of qualified immunity, which balances accountability with the need to shield officials who reasonably perform their jobs.

For example, the judge wrote that there is not a “clearly established right prohibiting the aiming of firearms, the use of threats or the use of OC spray against a suspect who has repeatedly refused to comply with lawful commands to exit a vehicle.”

The allegation that Nazario’s free speech was violated was also tossed under the federal immunity doctrine.

However, Young said Nazario’s claims under state law, false imprisonment and assault and battery, can move forward. The judge wrote that Virginia law “only provides local officials immunity from suits alleging negligence.”

Explaining his summary judgment on Crocker’s search for the gun, Young wrote that “the firearm was not relevant evidence for the crimes of eluding or obstruction of justice.” However, he said Nazario’s claims that Gutierrez knew about the search and failed to intervene could proceed Gutierrez has argued that he knew nothing about the search.

Jessica Ann Swauger, an attorney listed for Gutierrez, did not immediately respond to an email seeking comment.

Jonathan Arthur, one of the attorneys representing Nazario, said the judge’s ruling is a victory even though three of the federal claims were tossed.

“Whether it’s under federal law or whether it’s under state law, the jury is going to speak,” Arthur said. “And we hope that the jury is going to stand up and say that this behavior will not be tolerated.”

Anne C. Lahren, an attorney for Crocker, said the remaining questions are “classic” issues for a jury, rarely decided at this stage in a civil suit. She also noted that the judge found the stop itself and the officers’ ensuing commands to be lawful.

“Lt. Nazario’s own actions gave rise to the unfortunate, but lawful, escalation of force …,” Lahren wrote. “Had Lt. Nazario simply followed the lawful commands of the officers from the outset of the traffic stop, none of this would have been necessary.”

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Inflation Reduction Act limits pass-through tax break for 2 more years

Senate Majority Leader Chuck Schumer, DN.Y., discusses the Inflation Reduction Act on Aug. 7, 2022 in Washington, DC

Kent Nishimura | Los Angeles Times | Getty Images

Senate Democrats curtailed a tax break for certain pass-through businesses as part of the Inflation Reduction Act passed Sunday.

A pass-through or flow-through business is one that reports its income on the tax returns of its owners. That income is taxed at their individual income tax rates. Examples of pass-throughs include sole proprietorships, some limited liability companies, partnerships and S-corporations.

Democrats’ legislation — a package of health-care, tax and historic climate-related measures — limits the ability of pass-throughs to use big paper losses to write off costs like salaries and interest, according to tax experts.

More from Personal Finance:
How carried interest works and how it benefits high-income taxpayers
Inflation Reduction Act aims to trim insulin costs for Medicare users
Reconciliation bill includes nearly $80 billion for IRS

That limit — called the Limitation on Excess Business Losses — is currently already in place. It was scheduled to end starting in 2027, but the new bill would extend the restriction for an additional two years. That extension wasn’t in Senate Democrats’ initial version of the legislation, but it was added during the subsequent negotiation and amendment process.

The Inflation Reduction Act passed along party lines and now heads to the House.

Wealthy real estate owners likely impacted most

Republicans originally enacted the pass-through limitation in the 2017 tax law known as the Tax Cuts and Jobs Act.

Specifically, the law disallowed pass-through owners from using business losses exceeding $250,000 to offset non-business income. That dollar threshold is for single taxpayers; the law set a $500,000 cap for a married couple filing a joint tax return.

Those caps are higher in 2022 due to an inflation adjustment: $270,000 and $540,000, respectively.

“The business losses can only offset other business income, not salaries and interest and investment gains,” Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, said of the measure.

The provisions hurt “rich guys” who were using business losses to take tax write-offs against bonuses, salaries and investment income, for example, said Rosenthal.

The limitations can theoretically apply to any pass-through business that runs up a big operating loss each year. But real estate businesses — which can use rules around depreciation to consistently rack up big losses on paper — are likely among the most affected categories, according to Jeffrey Levine, a certified financial planner and certified public accountant based in St. Louis.

It’s a really big deal for uber-wealthy people with a ton of real estate.

Jeffrey Levine

chief planning officer at Buckingham Wealth Partners

“It’s a really big deal for uber-wealthy people with a ton of real estate, and then the occasional business that loses a ton of money every year,” said Levine, who is also chief planning officer at Buckingham Wealth Partners.

The limitation for pass-throughs was initially scheduled to expire after 2025, along with the other provisions of the Republican tax law that affected individual taxpayers.

However, Democrats extended the limit for an additional year in the American Rescue Plan, which President Biden signed into law in 2021. The Joint Committee on Taxation estimated that that one-year extension would raise about $31 billion.

The Inflation Reduction Act’s additional extension would presumably raise a roughly similar amount of money each year, Rosenthal said.

However, the business losses don’t necessarily disappear forever. Owners may be able to defer the tax benefits to future years, if Congress doesn’t extend the limitation again.

“The losses almost always get claimed later,” Rosenthal said.

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With 87,000 new agents, here’s who the IRS may target for audits

Jeffrey Coolidge | Photodisc | Getty Images

As the Democrats’ spending plan moves closer to a House vote, one of the more controversial provisions — nearly $80 billion in IRS funding, with $45.6 billion for “enforcement” — has raised questions about who the agency may target for audits.

IRS Commissioner Charles Rettig said these resources are “absolutely not about increasing audit scrutiny on small businesses or middle-income Americans,” in a recent letter to the Senate.

However, with the investment projected to bring in $203.7 billion in revenue from 2022 to 2031, according to the Congressional Budget Office, opponents say IRS enforcement may affect everyday Americans.

More from Personal Finance:
Inflation Reduction Act aims to trim insulin costs for Medicare users
Expanded health care subsidies remain intact in Inflation Reduction Act
Reconciliation bill includes nearly $80 billion for IRS including ‘enforcement’

“Our biggest worry in this is that the burden for these audits will land on Walmart shoppers,” Rep. Kevin Brady, R-Texas, said Tuesday on CNBC’s “Squawk Box.”

Overall, IRS audits plunged by 44% between fiscal years 2015 and 2019, according to a 2021 Treasury Inspector General for Tax Administration report.

While audits dropped by 75% for Americans making $1 million or more, the percentage fell by 33% for low-to-moderate income filers claiming the earned income tax credit, known as EITC, the report found.

Our biggest concern in this is that the burden for these audits will land on Walmart shoppers.

Rep. Kevin Brady, R-Texas

Ken Corbin, chief taxpayer experience officer for the IRS, said returns claiming the EITC have “historically had high rates of improper payments and therefore require greater enforcement,” during a May House Oversight Subcommittee hearing.

Since many lower-income Americans are wage earners, these audits are generally less complex and many may be automated.

How the IRS picks which tax returns to audit

Currently, the IRS uses software to rank each tax return with a numeric score, with higher scores more likely to trigger an audit. The system may flag a return when deductions or credits compared to income fall outside of acceptable ranges.

For example, let’s say you make $150,000 and claim a $50,000 charitable deduction. You’re more likely to get audited because it’s “disproportionate” to what the system expects, explained Lawrence Levy, president and CEO of tax resolution firm Levy and Associates.

Other red flags for an IRS audit may include unreported income, refundable tax credits such as the EITC, home office or auto deductions, and rounded numbers on your return, experts say.

How IRS audits may change with more funding

While the legislation still must be approved by the House and signed into law, it will take time to phase in the funding, hire and train new workers.

The IRS aims to hire roughly 87,000 new agents, according to the Treasury Department.

New auditors may have a six-month training program and receive cases worth a few hundred thousand dollars rather than tens of millions, Levy said.

“You’re not going to give a new General Motors trainee, for example,” he said. “It just isn’t going to happen.”

The chance of an audit may increase for self-employed taxpayers, Levy said, depending on their return. However, the odds may not change for traditional workers with an error-free filing, he said.

“The W-2 employee is much less likely to get audited than a self-employed person by far, in my opinion,” Levy said.

Of course, one of the best way to avoid future headaches is by keeping accurate records with detailed bookkeeping and saving all receipts, he said.

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3 dead in shooting at Florida Narcotics Anonymous meeting

EDGEWATER, Fla. — A man went into a Narcotics Anonymous meeting in Florida and fatally shot his ex-girlfriend and her friend before turning the gun on himself, police said Tuesday.

Quinton Hunter brandished the gun shortly after entering the Monday night meeting, Edgewater police Chief Joseph Mahoney said during a news conference Tuesday. About 20 other participants safely fled and called police, he said.

Erica Hoffman and Ian Greenfield were already dead when officers arrived, the chief said. At some point after the shooting, Hunter began recording a Facebook Live which showed him wearing goggles and breathing heavily.

“It appears from the timeline we have that he had already shot Mr. Greenfield and had fired several other shots before he went live,” the chief said. “But he didn’t make any comments, he didn’t communicate with us. Just heavy breathing. It was very strange.”

Officers sought to make contact with the suspect to negotiate before a SWAT team breached the building and found the gunman and the two others dead inside, the post said.

Hunter had a violent criminal history, the chief said. He also said investigators are still trying to figure out the relationship between Greenfield and Hoffman, and that Hunter may have been motivated by jealousy.

The meeting was held in the offices of Be The Bridge, a nonprofit organization that helps the homeless and others get a fresh start in life.

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North Carolina sheriff stocking schools with AR-15 rifles

MARSHALL, N.C. — When schools in one North Carolina county reopen later this month, new security measures will include stocking AR-15 rifles for school resource officers to use in the event of an active shooter.

Spurred by the elementary school shooting in Uvalde, Texas, that left 19 children and two teachers dead in May, school officials and Madison County Sheriff Buddy Harwood have placed one of the semiautomatic rifles in each of the county’s six schools. Each of the guns will be locked inside a safe, Harwood said.

The North Carolina school district and sheriff’s office are collaborating to enhance security after the Uvalde shooting revealed systemic failures and “egregiously poor decision-making,” resulting in more than an hour of chaos before the gunman was finally confronted and killed by law enforcement, according to to a report written by an investigative committee of the Texas House of Representatives.

“Those officers were in that building for so long, and that suspect was able to infiltrate that building and injure and kill so many kids,” Harwood told the Asheville Citizen Times. “I just want to make sure my deputies are prepared in the event that happens.”

The idea of ​​having AR-15s in schools does not sit well with Dorothy Espelage, a UNC Chapel Hill professor in the School of Education who has conducted decades of study and research on school safety and student well-being.

“What’s going to happen is we’re going to have accidents with these guns,” Espelage told WLOS-TV. Just the presence of an SRO increases violence in the schools. There’s more arrests of kids. Why is it that they have to have these AR-15s? It doesn’t make any sense.”

Madison County Schools Superintendent Will Hoffman said school administrators have been meeting regularly with local law enforcement officials, including Harwood, to discuss the updated safety measures.

Harwood said the county’s school resource officers have been training with instructors from Asheville-Buncombe Technical Community College.

Harwood said the safes where the AR-15s will be kept will also hold ammunition and breaching tools for barricaded doors.

“We’ll have those tools to be able to breach that door if needed. I do not want to have to run back out to the car to grab an AR, because that’s time wasted. Hopefully we’ll never need it, but I want my guys to be as prepared as prepared can be,” he said.

Schools are scheduled to reopen Aug. 22, according to the Madison County Schools website.

While the optics of school resource officers potentially handling AR-15s in schools may be discomforting to some, Harwood said he believes it is a necessary response.

“I hate that we’ve come to a place in our nation where I’ve got to put a safe in our schools, and lock that safe up for my deputies to be able to acquire an AR-15. But, we can shut it off and say it won’t happen in Madison County, but we never know,” Harwood said.

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Alabama town disbands police department over racist text

VINCENT, Ala. — A racist text message sent by a police officer has prompted officials in a small Alabama town to disband their police department and fire the police chief and assistant chief.

Vincent Mayor James Latimore on Thursday confirmed that Police Chief James Srygley and Assistant Chief John L. Goss had been dismissed, al.com reported.

The Shelby County Sheriff’s Office on Friday condemned the two officers’ actions and said it stands with the city “in providing emergency law enforcement related service to the citizens (of Vincent) at this time.”

In the message, which recently surfaced on social media, someone identified as “752″ texts: “What do y’all call a pregnant slave?” An unidentified recipient responds twice: “?” and “??”

“752″ answers: “BOGO Buy one, get one free”

“This has turned this community apart. It doesn’t matter what color we are as long as we do right by people,” City Councilman Corey Abrams said during Thursday’s council meeting.

On Tuesday, Latimore said “appropriate action has been taken” against the officer alleged to have sent the text, though at the time he would not name the person or anyone involved.

The city’s website lists three people in its department: Srygley, Goss and Officer Lee Carden.

During the council meeting, Latimore announced he had suspended the chief and assistant chief, and the council voted to end the agency. Latimer said Carden turned in his resignation via text message just hours after the city council voted to dissolve the department.

Located in central Alabama, southeast of Birmingham, Vincent has a population of just under 2,000 people. It’s located in Shelby, St. Clair, and Talladega counties.

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Sinema made Schumer cut carried interest piece of reconciliation bill

US Senate Majority Leader Chuck Schumer (D-NY) holds his weekly news conference after the Democratic caucus party luncheon at the US Capitol in Washington, August 2, 2022.

Jonathan Ernst | Reuters

Senate Majority Leader Chuck Schumer said Friday that Democrats had “no choice” but to drop a key tax provision from their major spending bill in order to gain Sen. Kyrsten Sinema’s support.

Sinema, a centrist Democrat from Arizona, had held her support of the Inflation Reduction Act, the sweeping bill that includes much of the Biden administration’s tax, climate and health care agenda. Senate Democrats need her support from her to pass the bill through the Senate on a party-line vote using the budget reconciliation process, which requires a simple majority vote. The chamber is split 50-50 between Democrats and Republicans.

Sinema announced Thursday night that she would indeed back the legislation, following an agreement “to remove the carried interest tax provision.”

She was referring to the bill’s inclusion of language that would narrow the so-called carried interest loophole, a feature of the tax code that both Democrats and Republicans — including former President Donald Trump — have tried to close.

Carried interest refers to compensation that hedge fund managers and private equity executives receive from their firms’ investment gains. After three years, that money is taxed at a long-term capital gains rate of 20%, instead of a short-term capital gains rate, which tops out at 37%.

The Inflation Reduction Act aimed to narrow that loophole by extending the short-term tax rate to five years. The bill’s provision was projected to raise $14 billion over a 10-year period.

“I pushed for it to be in this bill,” Schumer, DN.Y., said of the proposal to narrow the loophole.

But “Senator Sinema said she would not vote for the bill, not even move to proceed unless we took it out,” he said. “So we had no choice.”

Sinema stressed Thursday night that after the reconciliation bill passes, “I look forward to working with [Sen. Mark Warner, D-Va.] to enact carried interest tax reforms, protecting investments in America’s economy and encouraging continued growth while closing the most egregious loopholes that some abuse to avoid paying taxes.”

A spokeswoman for Sinema defended the senator’s record when asked by CNBC on Friday about Schumer’s remarks and her stance on carried interest.

Sinema “has been clear and consistent for over a year that she will only support tax reforms and revenue options that support Arizona’s economic growth and competitiveness,” the spokeswoman said. “At a time of record inflation, rising interest rates and slowing economic growth, disincentivizing investments in Arizona businesses would hurt Arizona’s economy and ability to create jobs.”

Schumer said that another tax piece from the Inflation Reduction Act was taken out in order to secure the deal with Sinema. This one came from a proposal to impose a 15% corporate alternative minimum tax aimed at rich corporations that are accused of skirting their tax obligations. It was projected to raise $313 billion — more than 40% of the bill’s revenue.

While that part of the bill was altered, “$258 billion of that remains, so the vast majority remains,” Schumer said.

And while the carried interest provision was nixed, Schumer said Democrats added in an excise tax on stock buybacks that will bring in $74 billion. He said that multiple legislators are “excited” about that update.

“I hate stock buybacks. I think they’re one of the most self-serving things corporate America does,” Schumer said. “I’d like to abolish them.”

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Sinema made Schumer cut carried interest loophole from reconciliation bill

US Senate Majority Leader Chuck Schumer (D-NY) holds his weekly news conference after the Democratic caucus party luncheon at the US Capitol in Washington, August 2, 2022.

Jonathan Ernst | Reuters

Senate Majority Leader Chuck Schumer said Friday that Democrats had “no choice” but to drop a key tax provision from their major spending bill in order to gain Sen. Kyrsten Sinema’s support.

Sinema, a centrist Democrat from Arizona, had held her support of the Inflation Reduction Act, the sweeping bill that includes much of the Biden administration’s tax, climate and health care agenda. Senate Democrats need her support from her to pass the bill through the Senate on a party-line vote using the budget reconciliation process — which requires a simple majority vote in the Senate split 50-50 by party.

Sinema announced Thursday night that she would indeed back the legislation, following an agreement “to remove the carried interest tax provision.”

She was referring to the bill’s inclusion of language that would narrow the so-called carried interest loophole, a feature of the tax code that both Republicans and Democrats — including former President Donald Trump — have tried to close.

Carried interest refers to compensation that hedge fund managers and private equity executives receive from their firms’ investment gains. After three years, that money is taxed at a long-term capital gains rate of 20%, instead of a short-term capital gains rate, which tops out at 37%.

The Inflation Reduction Act aimed to narrow that loophole by extending the short-term tax rate to five years. The bill’s provision was projected to raise $14 billion over a 10-year period.

“I pushed for it to be in this bill,” Schumer, DN.Y., said of the proposal to narrow the loophole.

But “Senator Sinema said she would not vote for the bill, not even move to proceed unless we took it out,” he said. “So we had no choice.”

Sinema stressed Thursday night that after the reconciliation bill passes, “I look forward to working with [Sen. Mark Warner, D-Va.] to enact carried interest tax reforms, protecting investments in America’s economy and encouraging continued growth while closing the most egregious loopholes that some abuse to avoid paying taxes.”

A spokeswoman for Sinema defended the senator’s record when asked by CNBC on Friday about Schumer’s remarks and her stance on carried interest.

Sinema “has been clear and consistent for over a year that she will only support tax reforms and revenue options that support Arizona’s economic growth and competitiveness,” the spokeswoman said. “At a time of record inflation, rising interest rates, and slowing economic growth, disincentivizing investments in Arizona businesses would hurt Arizona’s economy and ability to create jobs.”

Schumer said that another tax piece from the Inflation Reduction Act was taken out in order to secure the deal with Sinema. This one came from a proposal to impose a 15% corporate alternative minimum tax aimed at rich corporations that are accused of skirting their tax obligations. It was projected to raise $313 billion — more than 40% of the bill’s revenue.

While that part of the bill was altered, “$258 billion of that remains, so the vast majority remains,” Schumer said.

And while the carried interest provision was nixed, Schumer said Democrats added in an excise tax on stock buybacks that will bring in $74 billion. He said that multiple legislators he spoke with are “excited” about that update.

“I hate stock buybacks. I think they’re one of the most self serving things corporate America does,” Schumer said. “I’d like to abolish them.”

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Does the Inflation Reduction Act violate Biden’s $400,000 tax pledge?

JimWatson | Afp | Getty Images

Senate Democrats’ package of climate change, health-care, drug pricing and tax measures unveiled last week has proponents and opponents debating whether the legislation violates a pledge President Joe Biden has made since his presidential campaign, to do not raise taxes on households with incomes below $400,000 a year.

The answer isn’t quite as simple as it seems.

“The fun part about this is, you can get a different answer depending on who you ask,” said John Buhl, an analyst at the Tax Policy Center.

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Embryos can count as dependents on Georgia state tax returns
Would you be included in student loan forgiveness?
Remote work is helping fight inflation

The White House has used $400,000 as a rough dividing line for the wealthy relative to middle and lower earners. That income threshold equates to about the top 1% to 2% of American taxpayers.

The new bill, the Inflation Reduction Act, doesn’t directly raise taxes on households below that line, according to tax experts. In other words, the legislation wouldn’t trigger an increase on taxpayers’ annual tax returns if their income is below $400,000, experts said.

But some aspects of the legislation may have adverse downstream effects — a sort of indirect taxation, experts said. This “indirect” element is where opponents seem to have directed their ire.

What’s in the Inflation Reduction Act

The legislation — brokered by Senate Majority Leader Chuck Schumer, DN.Y., and Sen. Joe Manchin, DW.Va., who’d been a key centrist holdout — would invest about $485 billion toward climate and health-care measures through 2031, according to a Congressional Budget Office analysis issued Wednesday.

Broadly, that spending would be in the form of tax breaks and rebates for households that buy electric vehicles and make their homes more energy-efficient, and a three-year extension of the current Affordable Care Act subsidies for health insurance.

The bill would also raise an estimated $790 billion via tax measures, reforms for prescription drug prices and a fee on methane emissions, according to the Congressional Budget Office. Taxes account for the bulk — $450 billion — of the revenue.

Critics say corporate changes could affect workers

Specifically, the legislation would provide more resources for IRS enforcement of tax cheats and would tweak the “carried interest” rules for taxpayers who earn more than $400,000. The change to carried-interest rules — which allow certain private equity and other investors to pay a preferential tax rate on profits — is likely dead, though, after Democratic leaders agreed to scrap it to win support from Sen. Kyrsten Sinema, D-AZ.

Those elements aren’t controversial relative to the tax pledge — they don’t raise the annual tax bills middle and low earners owe, experts said.

The Inflation Reduction Act would also implement a 15% corporate minimum tax, paid on the income large companies report to shareholders. This is where “indirect” taxes might come into play, experts said. For example, a corporation with a higher tax bill might pass on those additional costs to employees, perhaps in the form of a lower raise, or reduced corporate profits may hurt 401(k) and other investors who own a piece of the company in a mutual fund.

The Democrats’ approach to tax reform means increasing taxes on low- and middle-income Americans.

Sen. mike krapo

Republican of Idaho

The current corporate tax rate is 21% but some companies are able to reduce their effective tax rate and therefore pay back their bill.

As a result of the policy, those with incomes below $200,000 would pay almost $17 billion in combined additional tax in 2023, according to a Joint Committee on Taxation analysis published July 29. That combined tax burden falls to about $2 billion by 2031, according to the JCT, an independent scorekeeper for Congress.

“The Democrats’ approach to tax reform means increasing taxes on low- and middle-income Americans,” Sen. Mike Crapo, R-Idaho, ranking member of the Finance Committee, said of the analysis.

Others say financial benefits outweigh indirect costs

However, the JCT analysis does not provide a complete picture, according to experts. That’s because it doesn’t account for the benefits of consumer tax rebates, health premium subsidies and lower prescription drug costs, according to the Committee for a Responsible Federal Budget.

Observers who consider indirect costs should weigh these financial benefits, too, experts argue.

“The selective presentation by some of the distributional effects of this bill neglects benefits to middle-class families from reducing deficits, from bringing down prescription drug prices and from more affordable energy,” a group of five former Treasury secretaries from both Democratic and Republican administrations wrote Wednesday.

The $64 billion of total Affordable Care Act subsidies alone would “be more than enough to counter net tax increases below $400,000 in the JCT study,” according to the Committee for a Responsible Federal Budget, which also estimates Americans would save $300 billion on costs and premiums for prescription drugs.

The combined policies would offer a net tax cut for Americans by 2027, the group said.

Further, setting a minimum corporate tax rate shouldn’t be viewed as an “extra” tax, but a “reclaiming of revenue lost to tax avoidance and provisions benefitting the most affluent,” argued the former Treasury secretaries. They are Timothy Geithner, Jacob Lew, Henry Paulson Jr., Robert Rubin and Lawrence Summers.

There are additional wrinkles to consider, though, according to Buhl of the Tax Policy Center.

For example, to what extent do companies pass on their tax bills to workers versus shareholders? Economists differ on this point, Buhl said. And what about companies with a lot of excess cash on hand? Might that cash buffer lead a company not to levy an indirect tax on its workers?

“You could end up going down these rabbit holes forever,” Buhl said. “It’s just one of the fun parts of tax pledges,” he added.

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