Fact Check: Is Trump Right That Inflation Bill Raises Middle Income Taxes?

While Americans' fears of economic hardship grow, the government says it is attempting to ensure those least fortunate avoid the greatest burden.

A new bill, the Inflation Reduction Act, aims to tax large corporations and close loopholes without taxing middle- and lower-income households, according to Democrats.

They say that the bill, yet to be passed, does not include tax rises for those earning less than $400,000 per year, in accordance with the pledge President Joe Biden made in 2020.

However, claims by former president Donald Trump and senior Republicans suggest the opposite.

Donald Trump
Donald Trump claimed via his Truth Social app that the Inflation Reduction Act, a new bill that would lead to a 15% minimum corporate tax, would increase costs for middle income earners, breaking a presidential manifesto pledge Joe Biden made. Pictured here, Trump speaks during the America First Agenda Summit, at the Marriott Marquis hotel on July 26, 2022 in Washington, DC. Drew Angerer/Getty Images

The Claim

On August 1, 2022, Trump claimed via his Truth Social app that the "New Democrat Bill" will increase tax for "middle income families".

Other messages claimed it was a "Big Tax increase for all Americans being pushed by Democrats," who reneged on Joe Biden's presidential campaign pledge not to raise taxes for those earning less than $400,000.

The Facts

The basis of the tax increase claims appears to have come from an analysis by the bipartisan Joint Committee on Taxation (JCT), commissioned by Republican Idaho Senator Mike Crapo.

The JCT analysis, Newsweek understands, estimates how a tax increase on some could impact all wage brackets, including those who make less than $400,000 per year.

Crapo used these figures to claim that taxes would increase, contrary to the Biden administration's pledge.

In a statement on his website, with the headline "JCT: Democrats' Proposals Increase Taxes on Millions of Americans," Crapo says the "Democrats' approach to tax reform means increasing taxes on low- and middle-income Americans to fund their partisan Green New Deal.

"Americans are already experiencing the consequences of Democrats' reckless economic policies. The mislabeled 'Inflation Reduction Act' will do nothing to bring the economy out of stagnation and recession, but it will raise billions of dollars in taxes on Americans making less than $400,000."

Crapo's statement adds that, according to the JCT, "taxes will increase by $16.7 billion on American taxpayers earning less than $200,000," proving "that the Biden pledge to not raise taxes on anyone earning less than $400,000 is shattered."

However, the findings by the JCT do not state that there will be a direct increase in taxes. It is an economic analysis of the possible effects of (only some parts) of the Inflation Reduction Act, which suggests that its tax changes are likely to bear costs on everyone.

In a hypothetical, a taxpayer may hold shares of a large corporation via their holdings in a pension fund or investment portfolio. If that corporation has to pay 15 percent minimum tax (one of the proposals in the bill), its share value could decline, or it may pay lower dividends or a combination of both.

Additionally, if returns on investments are reduced, capital investment could fall as well (the less money there is to go around, the less money people may be willing to invest). In theory, this could diminish workforce productivity (for example, companies may have to freeze hiring or reduce staff as investment rates drop) and cause a reduction in wages.

So, the JCT suggests, while your direct tax bill would not go up if you earn less than $400,000, your spending power would still be diminished.

While the JCT is non-partisan, its analysis is only one interpretation, which attempts to forecast the potential impact and effects of the legislation in the future. It is only an estimate of what might happen, not a guarantee of what will.

Trump and Crapo may be referring to indirect taxation, but they don't explicitly say that. Trump's claims on Truth Social don't make a clear distinction and, in the statement on his website, Crapo alludes to indirect taxation although not stating it outright.

"Non-partisan analysts are confirming this bill raises taxes on the middle class and produces no meaningful deficit reduction when gimmicks are removed and the full cost is accounted for," Crapo said.

To Crapo's credit, in an address to the Finance Committee Republicans, he clearly said the JCT analysis assessed where "the impact of these taxes falls" and that "the (Biden) administration has been careful to say 'We aren't raising the tax rates of anyone under $400,000,' but everyone in America knows that when taxes are charged some people end up carrying the burden of those taxes."

"That burden comes, by the way, because in the corporate tax field the impact or the incidence of the corporate tax is passed on to workers to capital, which means to those who own the stock, people trying to invest for their retirement in a pension plan or a 401k plan and in price increases to the economy," he added.

While some people might understand that the senator and former president could be referring to indirect taxation or rising costs, claims that the bill "will raise billions of dollars in taxes on Americans making less than $400,000" and a "Big Tax increase for all Americans" don't make that abundantly clear.

Arguments from Trump and Crapo that Democrats have broken a manifesto pledge on taxation too, strengthens the impression that direct tax bills are going up, not that taxes on some could cost others in the long-term.

The fact remains that if the bill passes, taxes are not going to increase for people earning less than $400,000, meaning the government can confidently say it has not broken its manifesto pledge.

Although there may be some persuasive analysis that forecasts how the bill will eventually impact all American wage brackets, it is not proof that taxes are going up for lower-income earners.

And as other experts have noted, the analysis doesn't detail the potential for positive indirect impact of the bill, such as stepped-up benefits for middle-income households.

Newsweek has contacted Crapo, Trump, and Tthe White House for comment.

The Ruling

Fact Check - Mostly False

Mostly False.

The Inflation Reduction Act would not increase taxes for Americans earning less than $400,000. The basis of Trump's statement is a single piece of analysis which, while thorough and comes from an authoritative source, is still just a projection of potential follow-on costs after corporations and others are taxed.

FACT CHECK BY Newsweek's Fact Check team