Overall, the BBB cuts taxes by $4.5 trillion over the next decade, primarily with $2.3 trillion of provisions that deliver most of their benefits to the richest 10 percent of Americans by income, according to new analysis of JCT data by the Center for American Progress. Within that, the BBB delivers $1 trillion in tax cuts to the top 1 percent while cutting more than $1.1 trillion from the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and other health programs used by the poorest Americans. (see Figure 1)
This analysis documents the specific tax provisions by which the BBB is delivering benefits to the rich. A majority of the following provisions’ benefits flow to the “rich,” defined in this analysis as the top 10 percent of Americans by income. Collectively, these regressive provisions will cost nearly $2.3 trillion over the next decade, making up nearly 70 percent of the legislation’s $3.4 trillion deficit cost and more than half of its tax cuts by deficit cost.
1. Top marginal tax rate cut
Provision details: The BBB enacted permanent cuts to all marginal tax rates except the lowest marginal rate. In particular, it reduced the top marginal income tax rate from 39.6 percent to 37 percent. This provision can be expected to cost about $340 billion through 2034.
Who benefits: The top marginal rate applies to income received over about $640,000 for individuals and the portion of income above about $768,000 for married couples. This change affects the top 2 percent of taxpayers but saves those high-income taxpayers more than $10,000 per year on average. The top marginal rate was at 39.6 percent for most of the 1990s and the mid-2010s—and would have returned there absent the BBB change.
2. Estate tax cuts
Provision details: In 2023, only the richest 4,000 estates owed any estate tax at all, and the federal government collected $24 billion that otherwise would have flowed to the heirs and heiresses of those estates. The estate tax does not apply to all wealth a person has when they die in practice because there exist many avoidance methods and loopholes that wealthy people use to shield their assets from tax. On top of those loopholes, the 2017 Tax Cuts and Jobs Act (TCJA) temporarily raised the amount of assets that are exempt from tax from $5 million per person, plus inflation, to $10 million, indexed for inflation. The BBB permanently raised the amount exempt from the estate tax to $15 million per person, plus inflation. This change is expected to cost $212 billion through 2034.
Who benefits: The beneficiaries of this tax cut are the heirs of the few thousand estates that have tens of millions of dollars. In theory, each estate may have many beneficiaries, but in practice, some research suggests that estates have few heirs, and most are children of the deceased. This means that cutting the estate tax delivers millions in gains to a few multimillionaires on new income that they did not earn.
3. Deduction for pass-through business owners
Provision details: In general, regular income is taxed the same for everyone. However, the BBB permanently enacted a two-tier system, established under the 2017 TCJA, that allows pass-through business owners access to special, lower marginal tax rates than workers. The 199A pass-through business deduction allows business owners to deduct 20 percent of their “qualified business income” on their taxes. This lowers taxes on their income by slightly more than 20 percent compared with the tax rates on ordinary income (as opposed to corporations, pass-through businesses do not pay taxes; they “pass through” their income to their owners). In effect, this makes marginal tax rates 20 percent lower for people with business income versus people who work for wage income. So, this provision allows business owners to pay taxes at lower rates than their employees.
As an example, let’s say Martha owns a store and receives $180,000 in income from the store, whereas John manages Martha’s store and earns $90,000 in salary. Because John works for his money, he is taxed at the standard 22 percent marginal rate on his final dollar of earnings. Martha, on the other hand, makes passive business income without working at the store. Martha’s high income should place her in a higher tax bracket than John, but because she has been given the pass-through business deduction, she pays taxes at only a 19 percent rate on her final dollar—below John’s 22 percent rate marginal rate. The pass-through deduction grows more valuable the higher a business owner’s tax bracket is and has the effect of shifting the burden of taxes from business owners to workers.
Who benefits: Though there are millions of small-business owners at all income levels, the richest ones accrue the vast majority of this provision’s benefits. (see Figure 2). In 2022, 87 percent of pass-through deduction benefits went to the top 10 percent of Americans by income, and half of the benefits went to millionaires. Meanwhile, taxpayers making less than $200,000—while representing 60 percent of small-business filers—received only 11 percent of the benefits from the pass-through deduction. Research finds no concrete evidence that there are any “trickle down” benefits for businesses’ workers or that owners even increase investment in their businesses because of this provision.
4. Investment income tax exemptions for qualified small-business stock and opportunity zones
Provision details: The BBB expands rich investors’ ability to earn money tax-free. In general, income from capital gains already receives special treatment by being taxed at lower rates than regular income. Additionally, certain kinds of capital gains can qualify to be exempted from tax entirely. The BBB expands two of these tax capital gains tax exemptions.
First, it reauthorizes the expiring Opportunity Zones (OZ) exemption at a cost of $41 billion. This provision eliminates taxes on income from investments in specified “opportunity zones” that are held for at least 10 years. Second, the BBB increases the amount that can be exempted from tax under the Qualified Small Business Stock (QSBS) exemption by 50 percent, at a cost of $17 billion. The QSBS exemption eliminates taxes on investors in certain startup companies and allows $15 million or 10 times an investor’s basis—whichever is greater—to be excluded from capital gains after five years, with lesser amounts owed after only three and four years.
Who benefits: According to U.S. Treasury Department research, three-fourths of the gains from the QSBS tax exemption go to people with total positive incomes of more than $1 million. Only about 1 percent of gains go to people with less than $100,000 in income.
Comprehensive data on who benefits from the Opportunity Zones exemption does not exist, but beneficiaries’ profiles are likely to be similar to those of QSBS beneficiaries because this is a tax break restricted to very savvy and professional investors. When discussing this, the Congressional Research Service notes that “economic theory would predict that tax subsidies for capital would not directly benefit workers” and that programs such as these “tend to shift investment from one area to another, rather than result in a net increase in aggregate economic activity.”
5. International business tax cuts
Provision details: The 2017 TCJA enacted large tax cuts for businesses, especially for large international corporations. The headline changes were lowering the corporate tax rate from a maximum of 35 percent to 21 percent and moving the United States from a worldwide corporate tax system to a more territorial tax base. Despite the comparative lack of focus on corporate and business taxes during the passage of the BBB relative to the TCJA, the BBB actually cut international business taxes more than the 2017 TCJA did.
In particular, the BBB cut taxes on corporations’ foreign profits by $167 billion, while the TCJA’s foreign tax changes were deficit-neutral on paper. The TJCA substantially cut taxes on corporations’ international profits, incentivizing offshoring to reduce taxes. It was paid for by a one-time “transition tax” and the promise that tax rates on offshored profits would be taxed at higher rates in later years. The BBB canceled the provisions that promised to better tax foreign profits. This effectively decreases corporate tax rates for companies’ foreign operations.
Who benefits: Research on the 2017 corporate tax cuts has found that corporate tax cuts overwhelmingly benefit top earners, so we can expect these BBB cuts to follow a similar pattern. According to the best research on the TCJA’s effects, 80 percent of the benefits of corporate tax cuts flow to the top 10 percent of Americans. Using restricted tax data, a team of researchers from the JCT and Federal Reserve Board examined who benefited from the corporate rate cuts, finding that “51% of gains flow to firm owners, 10% flow to executives, 38% flow to high-paid workers, and 0% flow to low-paid workers.” (See Figure 3)
6. Special-interest tax breaks
Provision details: The BBB contains many provisions that cut taxes for favored industries. These include provisions:
- Exempting banks from paying taxes on 25 percent of the profits from real-estate lending in rural areas
- Lowering tax rates on the makers of distilled spirits
- Loosening the rules for real estate investment trusts (REITs), thereby giving a tax cut to their owners
- Allowing oil and gas companies to take a special deduction for their intangible drilling and development costs
- Giving special expensing rules to the owners of sound recording studios
- Giving investors in spaceports preferential access to tax-free bond financing
Who benefits: Special-interest business tax breaks such as these generally just pad the pocketbooks of the business owners getting tax breaks. These provisions do not require that beneficiary businesses hire more workers or share their profits, and these are not especially needy industries. The distribution is likely similar to that of the overall corporate tax cuts shown above.
7. Domestic corporate and business tax cuts
Provision details: There are $753 billion in broad-based domestic business tax cuts in the BBB, similar in inflation-adjusted terms to the $650 billion in business cuts in the original TCJA. Many of the business tax cuts in the BBB take the form of cutting taxes on different investments, such as on research and development, equipment purchases, and certain manufacturing and production structures. The legislation also awarded $61 billion in more generous deductions for business debt payments.
Who benefits: The benefits of investment incentives, such as those enacted by the BBB, are subject to some debate. As discussed, decreasing taxes on corporations and businesses primarily benefits the executives and owners of those businesses. On the other hand, tax cuts that are tied to increasing investment, as opposed to unrestricted tax cuts tied to profits, can effectively increase investment. Provisions like the pass-through business deduction, the international business tax cuts, and miscellaneous tax cuts layer benefits on already profitable businesses; but provisions tied to increasing investments can have economically beneficial effects.
BBB provisions that subsidize investment in research and development and capital equipment will reward companies that spend more on those items. Research shows that when companies increase investment in response to tax incentives, employment also increases. However, though these incentives can increase employment and company earnings, it does not appear that workers’ earnings increase in response to these types of incentives.
See also
Conclusion
As future policymakers look to reduce deficits and improve the distribution of federal taxes and spending to support the poor and middle class, it is important to re-examine recent laws and how they have harmed those goals. Understanding the specific ways that the BBB increased deficits in order to further enrich the wealthiest Americans is important for restoring a fair, fiscally responsible tax code in the future.