The U.S. House passed the Build Back Better bill Friday morning, and there’s much to applaud in this legislation. On top of providing needed help to families struggling to meet everyday challenges like paying rent and putting food on the table, affording child care and preschool, or paying for college, early estimates also suggest the vast majority of Michigan residents will see a tax break if Build Back Better (BBB) becomes law.
BBB extends many of the most needed policies first introduced through the American Rescue Plan Act in the wake of COVID-19, including the Earned Income Tax Credit (EITC) expansion. The American Rescue Plan tripled the credit for workers without children and also extended the credit to reach more working adults — lowering the minimum age from 25 to 19 and eliminating the maximum age of 65. These changes will provide a tax cut of up to $1,500 for 571,000 low-wage workers in Michigan alone.
BBB also extends the Child Tax Credit (CTC) expansion, providing a monthly credit of $300 for each child under 6 years old and $250 for each child under 18. Most importantly, BBB makes the CTC permanently refundable, a move that will benefit the families with the lowest incomes who otherwise may not receive the full credit. We have already seen the huge impacts of the expansion this year — state data shows 9 in 10 Michigan families with low incomes are using monthly CTC payments to pay for necessities and education expenses.
Tax credits like these will not only help reduce poverty, but will also begin to address racial disparities in income and wealth. While expanding the CTC will benefit children from all racial and ethnic backgrounds, poverty amongst Black children specifically would be cut in half.
At the same time, the Joint Committee on Taxation estimates BBB will reduce deficits and be paid for by requiring our wealthy corporations and high-income earners pay a fairer share of taxes. While the framework includes several new provisions, three in particular stand out:
- A corporate alternative minimum tax of 15% will ensure highly profitable companies are not using loopholes or accounting maneuvers to cancel out their tax liability, as we recently learned is so common. This is by far the biggest revenue raiser in this bill, anticipated to bring in $318 billion over 10 years.
- Additional allocations to the IRS will help ramp up enforcement and guarantee businesses, particularly pass-through entities, pay their fair share of taxes. Increased tax compliance is expected to bring in an estimated $1.41 billion in unpaid or underpaid taxes.
- A 5% surtax on household income above $10 million and an additional 3% on household income above $25 million will improve tax fairness by asking more of high net wealth individuals. While many high net wealth individuals face limited or no tax liability, because unrealized capital gains go untaxed, this is a starting point to creating a more equitable system while also raising $227 billion in revenue.
BBB will overwhelmingly bring positive changes and increased fairness to our tax code. Taken all together, Build Back Better lifts up Michigan families most in need while responsibly funding our priorities by making the tax system more equitable.
We at the Michigan League for Public Policy applaud the House for passing this legislation and urge the U.S. Senate to take swift action to enact Build Back Better and help families meet everyday challenges.
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