A New Bill Could Erase or Cut Income Taxes For Middle Class Americans—Here's How It Would Work

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A bill recently introduced by Senate Democrats would eliminate federal income taxes for individuals earning $46,000 or less and lower them for those making up to $80,500.

The Working Americans' Tax Cut Act, introduced March 12 by Sen. Chris Van Hollen, D-Md., and Sen. Mark Kelly, D-Ariz., has 19 Senate cosponsors. Rep. Don Beyer, D-Va., has introduced a companion bill in the House. It would create an alternative maximum tax that caps the tax liability of low- and middle-income earners.

To fund these tax cuts, the bill would establish new marginal tax rates for those earning more than $1 million.

The new Senate bill would cut taxes primarily for middle-income earners and tax millionaires to offset the cost. The bill was recently referred to the Senate Committee on Finance, but it would need to pass both chambers and be signed by the president.

“Far too many Americans are working hard for their paychecks but still having trouble making ends meet. These Americans who are earning just enough to get by ... should not have to pay a federal income tax,” said Sen. Chris Van Hollen (D-MD) in a press release.

The alternative maximum tax would set an exemption—$46,000 for single filers, $92,000 for joint filers—and cap the tax owed on income above that exemption at 25.5%. Single filers earning less than $46,000 would owe no federal income tax.

The alternative maximum tax would work in tandem with the existing taxation system. "A filer would compute their tax under both the standard tax schedule and the alternative maximum. If the alternative produces a lower figure, they pay that amount instead," according to an analysis by the Yale Budget Lab.

Here's how that would work. Take a single filer earning $66,000. Under the bill's cap, they would subtract the $46,000 exemption from their income, leaving $20,000. Their tax bill would be capped at 25.5% of that amount: $5,100.

Under the present system, the same filer would subtract the $16,100 standard deduction, leaving $49,900 in taxable income, and owe about $5,800 based on the 2026 marginal brackets. Because that exceeds the $5,100 cap, they would pay $5,100, saving about $700.

The right-leaning National Taxpayers Union called the changes overly complicated. "The alternative minimum tax is the kind of confusing mechanism that legislators should be working to excise from the tax code," its analysis argued.

Not every filer would qualify for the cap. Only filers with incomes below 175% of the exemption ($80,500 for single filers) would qualify.

"This provision would benefit relatively few people among the poorest 20 percent or richest 20 percent of Americans and would mainly benefit the middle 60 percent," according to an analysis by the Institute on Taxation and Economic Policy, a left-leaning think tank. "Many people among the poorest 20% would not benefit because their income tax liability is already zero."

The bill would offset most of the cost through a new surtax on millionaires. The Tax Foundation estimates the alternative maximum tax would reduce federal revenue by about $1.6 trillion over a decade, while the surtax would raise about $1.5 trillion, leaving a net cost of $86 billion over 10 years.

Single filers earning more than $1 million would pay an additional 5% on income between $1 million and $2 million, 10% between $2 million and $5 million, and 12% on income above $5 million.

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