Introduction
Senators Chris Van Hollen (D-MD) and Cory Booker (D-NJ) have each introduced new taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. plans that would cut income taxes for lower- and middle-income taxpayers and raise them for the highest-income taxpayers and corporations, further increasing the progressivity of the federal income tax.
Senator Van Hollen’s plan would slightly reduce federal tax revenue, losing $86 billion over the 10-year budget window on a conventional basis. Taxpayers in the middle quintile would see the largest increase in after-tax income of 3.9 percent, while taxpayers in the top 1 percent would see a 9.7 percent decrease.
Senator Booker’s plan would significantly reduce federal tax revenue, losing up to $6.7 trillion over the 10-year budget window on a conventional basis without accounting for the unspecified business tax increases. In 2027, taxpayers in the bottom quintile would see the largest increase in after-tax income of 11.4 percent, while taxpayers in the top 1 percent would see a decrease in after-tax income of over 2 percent.
Though some lower- and middle-income taxpayers would face better incentives through lower marginal tax rates under the plans, businesses and higher-income taxpayers would face worse incentives through higher marginal tax rates. On net, we expect both plans would reduce long-run GDP while increasing the federal government’s budget deficit.
Introduction
Senators Chris Van Hollen (D-MD) and Cory Booker (D-NJ) have each introduced proposals aimed at cutting taxes for lower- and middle-income taxpayers and raising them on high-income taxpayers.
Both ideas would further increase the progressivity of an already highly progressive taxA progressive tax is one where the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden. code, where higher-income taxpayers face higher average income tax rates and account for the largest shares of income taxes paid. By focusing tax increases on the wealthy, they would both narrow the base of taxable economic activity used to finance the cost of the tax cuts. Relying on a smaller tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. would create a less stable and more economically distortive tax system.
The Two Proposals
Senator Van Hollen has introduced legislation called the Working Americans’ Tax Cut Act (WATCA) that would eliminate income taxes on lower-income taxpayers through a new “maximum tax” calculation.
The maximum tax would set an exemption equal to $46,000 for single filers and $92,000 for joint filers. Qualifying taxpayers, defined as those with income of 175 percent or less of the exemption, would calculate their ordinary tax liability and their tax liability under a 25.5 percent tax with the “cost of living” exemption, paying the lesser amount.
To finance this tax cut, the plan would impose a new surtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. on high-income taxpayers: 5 percent on income above $1 million ($1.5 million for joint filers), 10 percent above $2 million ($3 million for joint filers), and 12 percent above $5 million ($7.5 million for joint filers). The maximum tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. and surtax thresholds would all be adjusted for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin.
Senator Booker will be introducing legislation called the Keep Your Pay Act. It would more than double the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. Taxpayers who take the standard deduction cannot also itemize their deductions; it serves as an alternative. to $37,500 for single filers, $75,000 for joint filers, and $56,250 for head of household filers. It would expand refundable tax credits by increasing the child tax credit (CTC) to $4,320 for children under 6 and $3,600 for children ages 6 to 17, while providing an additional $2,400 bonus in the year a child is born and making it fully refundable. The expanded CTC amounts would begin phasing down to the current-law CTC amounts at $150,000 for joint filers and $112,500 for single filers. The CTC values would be inflation-adjusted.
The earned income tax credit (EITC) would triple for workers without qualifying children by increasing the phase-in rate to 15.3 percent and slightly expanding the income thresholds. The age range for the credit would expand to cover those ages 19 to 24 and over 65.
To partially offset the cost of the expanded standard deduction and refundable tax credits, Booker has specified that the tax rates for the top two tax bracketsA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. would increase from 35 percent and 37 percent currently to 41 percent and 43 percent. He has announced, but not specified, additional tax increases, including increasing the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate and the stock buyback excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. rate.
How Much Would They Cost?
We estimate Senator Van Hollen’s proposal would reduce federal tax revenue by $86 billion between 2026 and 2035. The “living wage” exemption would cut taxes by nearly $1.6 trillion, while the millionaire surtax would increase taxes by $1.5 trillion, falling just short of revenue neutrality. On a dynamic basis, accounting for the decline in economic output caused by higher marginal tax rates, it would reduce revenue by a larger $180 billion over 10 years. A detailed revenue table is available for download.
Download Full Revenue Table
10-Year Revenue Effects of Senator Van Hollen’s Working Americans’ Tax Cut Act, 2026-2035
Source: Tax Foundation General Equilibrium Model, March 2026.
We estimate Senator Booker’s proposal would reduce federal tax revenue up to $6.7 trillion between 2026 and 2035. The standard deduction increase would lose the most revenue, cutting taxes by nearly $5.9 trillion between 2026 and 2035. The CTC expansion would cost nearly $1.8 trillion, and the EITC expansion would cost $112 billion. Raising the top two individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source rates would increase revenue by $1.1 trillion, offsetting 14 percent of the tax cuts.
On a dynamic basis, reflecting the decline in GDP caused by higher marginal tax rates, Booker’s proposal would reduce revenue by a larger $6.9 trillion over the decade. We do not currently model the unspecified business tax increases, which would raise additional revenue for the plan but also produce additional dynamic effects for revenue and the economy.
10-Year Revenue Effects of Senator Booker’s Keep Your Pay Act, 2026-2035
Source: Tax Foundation General Equilibrium Model, March 2026.
Who Would Benefit?
Both proposals aim to provide tax relief to lower- and middle-income taxpayers and higher tax burdens on higher-income taxpayers, as the nearby chart illustrates.
Senator Van Hollen’s plan would, on average, increase taxes on the top 1 percent of filers and decrease taxes on all other income groups, with the largest tax cuts provided for taxpayers in the middle quintile. Overall, in 2027, 38 percent of filers would receive a tax cut, while 0.4 percent would receive a tax increase.
On average, taxpayers in the middle quintile would see a $2,273 tax cut in 2027, or a 3.9 percent increase in after-tax income. Taxpayers in the bottom quintile would see little change in after-tax income, as many filers in this group already pay no income taxes.
Distributional Effects of Senator Van Hollen’s Tax Proposal
Note: Market income includes adjusted gross incomeFor individuals, gross income is the total of all income received from any source before taxes or deductions. It includes wages, salaries, tips, interest, dividends, capital gains, rental income, alimony, pensions, and other forms of income.
For businesses, gross income (or gross profit) is the sum of total receipts or sales minus the cost of goods sold (COGS)—the direct costs of producing goods (AGI) plus 1) tax-exempt interest, 2) non-taxable Social Security income, 3) the employer share of payroll taxes, 4) imputed corporate tax liability, 5) employer-sponsored health insurance and other fringe benefits, 6) taxpayers’ imputed contributions to defined-contribution pension plans. Market income levels are adjusted for the number of exemptions reported on each return to make tax units more comparable. After-tax income is market income less: individual income tax, corporate income tax, payroll taxes, estate and gift taxA gift tax is a tax on the transfer of property by a living individual, without payment or a valuable exchange in return. The donor, not the recipient of the gift, is typically liable for the tax., custom duties, and excise taxes. The 2027 income break points by percentile are: 20%-$18,461; 40%-$40,036; 60%-$76,868; 80%-$135,756; 90%-$196,530; 95%-$278,067; 99%-$633,418; 99.9%-$2,377,392.Source: Tax Foundation General Equilibrium Model, March 2026.
Senator Booker’s proposal would, on average, increase taxes on the top 1 percent of filers and decrease taxes on all other income groups, with the largest tax cuts as a share of income provided for taxpayers in the bottom quintile. Booker’s expansion of refundable tax credits substantially increases after-tax income for the bottom two quintiles, unlike Van Hollen’s plan, which primarily eliminates remaining tax liability.
Overall, in 2027, about 82 percent of filers would receive a tax cut, while 2.8 percent would receive a tax increase under Booker’s proposal.
On average, taxpayers in the middle quintile would see a $3,398 tax cut in 2027, or a 5.8 percent increase in after-tax income. Taxpayers in the bottom quintile would see an average tax cut of $1,257, or an 11.4 percent increase in after-tax income, reflecting the large expansion of refundable tax credits.
Distributional Effects of Senator Booker’s Tax Proposal
Note: Market income includes adjusted gross income (AGI) plus 1) tax-exempt interest, 2) non-taxable Social Security income, 3) the employer share of payroll taxes, 4) imputed corporate tax liability, 5) employer-sponsored health insurance and other fringe benefits, 6) taxpayers’ imputed contributions to defined-contribution pension plans. Market income levels are adjusted for the number of exemptions reported on each return to make tax units more comparable. After-tax income is market income less: individual income tax, corporate income tax, payroll taxes, estate and gift tax, custom duties, and excise taxes. The 2027 income break points by percentile are: 20%-$18,461; 40%-$40,036; 60%-$76,868; 80%-$135,756; 90%-$196,530; 95%-$278,067; 99%-$633,418; 99.9%-$2,377,392.Source: Tax Foundation General Equilibrium Model, March 2026.
What Effects Would They Have on the Economy?
We estimate that Senator Van Hollen’s proposal would have a slightly negative economic effect overall, reducing long-run GDP by 0.1 percent and hours worked by 133,000 full-time equivalent jobs.
The alternative maximum tax would have a positive effect, because, on average, it reduces marginal tax rates on income for the affected taxpayers. Qualifying filers under the alternative maximum tax would see a lower marginal tax rate, near 0, if their income falls below the exemption threshold. Above the threshold, filers would face a 25.5 percent tax rate, and for some filers, this would be a higher marginal tax rate than they experience under the ordinary income tax, resulting in worse incentives at the margin even though they would see lower tax liability overall.
That positive effect, however, would be completely offset by the surtax. For tax returns reporting $1 million or more in total income, business income accounts for roughly 29 percent of earnings. Higher marginal tax rates on labor, investment, and business income would shrink hours worked and the capital stock, leading to a slight decline in economic output overall.
American incomes (measured by GNP) would be 0.3 percent lower under the plan, as the combination of higher marginal tax rates and the larger budget deficit causes income to decrease by more than the decrease in GDP.
Long-Run Economic Effects of Senator Van Hollen’s Working Americans Tax Cut Act
Source: Tax Foundation General Equilibrium Model, March 2026.
Under Senator Booker’s proposal, we estimate long-run economic output would be 0.3 percent smaller. The capital stock would shrink by 1.1 percent and wages by 0.4 percent, while hours worked would expand by 216,000 full-time equivalent jobs. American incomes, measured by GNP, would decline by 1.5 percent, largely reflecting the increase in the federal budget deficit.
The standard deduction expansion would boost output and hours worked but shrink the capital stock and wages. Increasing the standard deduction can lower marginal tax rates on income if the larger deduction causes a filer to move into a lower tax bracket. It can also increase marginal tax rates on income if filers move from itemizing their state and local taxes paid, and it would increase the tax burden on various activities that currently can be itemized (such as charitable giving and housing).
The CTC and EITC can affect labor supply decisions by changing marginal tax rates. The CTC currently phases in with earned income, reducing marginal tax rates for people along the phase-in range. Making the credit fully refundable would increase marginal tax rates on low-income taxpayers along the phase-in range, reducing incentives to work for affected taxpayers.
Additionally, as the credit phases out, it raises marginal rates for taxpayers within the phaseout range. Boosting the maximum child tax credit—and phasing out the additional amount—extends the phaseout range and therefore the amount of income subject to higher marginal tax rates. Similarly, because the EITC phases in and out with earned income, increasing the credit lengthens both ranges.
Under Booker’s expanded standard deduction, we estimate only 2 percent of filers would continue to itemize their deductions, compared to 14 percent under current law.
Long-Run Economic Effects of Senator Booker’s Keep Your Pay Act
Source: Tax Foundation General Equilibrium Model, March 2026. Items may not sum due to rounding.
How High Would Top Tax Rates Be?
The top rate would be 49 percent under Van Hollen’s proposal and 43 percent under Booker’s proposal, compared to 37 percent under current law. The average top personal income tax rate in European OECD countries sits at 43.4 percent in 2026.
Top federal income tax rates exceeding 40 percent would place the US among countries like the Netherlands, Spain, and France, but with a key distinction—in those countries, top rates apply at much lower income levels.
The Netherlands’ top rate of 49.5 percent, for example, applies to income above approximately $91,000, while France’s top rate of 45 percent applies above approximately $210,000 (with an additional 4 percent surtax applying above approximately $580,000).
In contrast to European tax rates, top tax rates in the United States tend to be much more narrowly applied.
Conclusion
Both proposals would reduce federal revenue—Booker’s proposal especially—while increasing the progressivity of the tax system. While lower- and middle-income taxpayers would see higher after-tax incomes, higher marginal tax rates on labor and capital would reduce investment, hours worked, and long-run economic output. On net, we estimate both proposals would increase the federal budget deficit and reduce long-run GDP.
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