Here are six things to know about the plan.
No wealth tax
The United States has an income tax system, not a wealth tax system like the one advocated by Senator Elizabeth Warren (D-Mass.), And that will not change with the Democrats’ proposal to bedroom. With only a small majority in the house and at the mercy of their moderates, Democrats are focused on raising income taxes for the rich rather than more controversial proposals to tackle accumulated wealth.
Their plan would increase the top marginal tax rate to 39.6%, from 37%; impose a new 3% surtax on people earning more than $ 5 million; and raising the capital gains rate to 28.3% from 23.8%, among other changes.
Proposals like the Biden administration’s targeting the ability of the wealthy to pass assets on to their heirs tax-free. Few advocate for the “enhanced base on death” provisions that the administration wants to narrow, but it has politically powerful advocates, such as farmers, and cutting tax relief has always been a long way.
All of this is good news for the uber-rich like Jeff Bezos, who earn their money not from big salaries, but because they own businesses that become extremely valuable. Democrats are proposing to toughen one type of wealth tax: the inheritance tax, by cutting its exemption rate by nearly half, to $ 6 million for couples, and making other changes.
Businesses would pay dearly, wiping out 2017 earnings
Republicans have notoriously cut the corporate rate to 21%, from 35% under the Tax Cuts and Jobs Act. But they also simultaneously created new taxes on the foreign income of large companies. The net effect was that large corporations received a planned tax cut of $ 330 billion, according to non-partisan congressional markers.
Democrats are not proposing to completely reverse this cut in corporate rates – they would push it back to 26.5%. But they also tighten the taxes Republicans have created on the foreign profits of multinationals and add a few more. The combined result is a corporate tax hike of $ 963 billion, according to official estimates – which companies are complaining about is nearly three times the tax cuts they received in 2017.
This would come as corporate tax revenues, which plunged after the TCJA, are now rebounding on higher profits. Payments from companies are expected to total $ 268 billion this year, not that far from the $ 297 billion they paid the year before the Republicans’ tax cuts took effect.
Democrats would say these official estimates underestimate how much companies took out of the TCJA because they included tax increases that could later be overturned by Congress. And many don’t think companies were paying their fair share even before the GOP cuts.
Democrats cut taxes too
Their tax hikes are getting all the attention, but Democrats also want to cut a lot of taxes. They want to expand their new monthly child tax credit payment program and make a recent income tax credit expansion permanent (although some of these increases technically count as expenses, not tax cuts. ).
They have a long list of clean energy tax breaks, including significant new subsidies for the purchase of electric cars, trucks and bikes, as well as a host of provisions to promote affordable housing, help state governments and subsidize the salaries of educators.
Some of the cuts they have come up with are surprising. Ways and Means President Richard Neal (D-Mass.) Wants to create a new deduction for union members by allowing them to write off up to $ 250 in dues. And he has a proposal to help secure salaries for local journalists, with special tax relief for their editors.
The SALT debate left to superiors
Neal’s plan does not address the question of what to do with the $ 10,000 cap on state and local tax deductions imposed by Republicans in 2017, and his committee has no plans to tackle it. more. Instead, he throws the issue back to Pelosi, who will take care of it once Ways and Means approves the rest of the legislation.
The issue has deeply divided Democrats, with lawmakers in high-tax states demanding its repeal, and others reluctant to cut a tax that would primarily benefit the rich – and blurs the Democrats’ message about the rich.
Pelosi likely won’t unveil a plan to tackle the cap until the entire spending and tax plan is presented to the House, leaving little time for debate. It could also mean that there will be surprise payments added at the last minute to cover the cost of whatever she decides.
Relaxing or eliminating the cap altogether will be costly, potentially reaching hundreds of billions of dollars. A spokesperson for Pelosi said: “As work continues between the House, Senate and White House on this and other unfinished but critical items, fixing the Republicans’ SALT ceiling attack against progressive state and local governments remains absolutely a priority for House Democrats in the final reconciliation package. . “
Many clashes to come with the Senate
Democrats in both chambers have worked behind closed doors to narrow their differences, hoping to speed up the review, but it’s clear there will be fighting on multiple fronts. Senate Finance Chairman Ron Wyden (D-Ore.), For example, wants to do a lot more to tackle the wealth of billionaires, including proposing an annual tax on their unrealized capital gains.
Under pressure from the moderates, Neal also goes more easily on the income of multinationals abroad than Wyden or the Treasury Department would like.
Many of Neal’s colleagues in the House are unhappy with the administration’s proposal to raise taxes on U.S. multinationals more than it is asking other countries to do as part of a campaign for a global minimum tax . Wyden also wants to impose other taxes on companies, such as a new tax on share buybacks.
The two tax drafters are also wondering what to do with a jumble of energy tax provisions. Neal wants to significantly expand the existing arrangements while Wyden wants to consolidate more than 40 specialist breaks into a few technologically neutral arrangements.
But Wyden’s ambitions will also face obstacles from moderates. in his own room, namely, Manchin and Senator Kyrsten Sinema of Arizona.
Some surprises from Neal
It’s fair to say that Neal isn’t the darling of the Left. Many progressives felt his heart had never been chasing the tax returns of former President Donald Trump and questioned his commitment to raise taxes as well. Neal himself has left plenty of room for such speculation by setting aside calls from other Democratic leaders for higher taxes on the rich and saying little about his own plans.
In his defense, Neal said he was less interested in giving seminars on taxation than trying to figure out what combination of tax increases could cover Democrats’ costs while still being able to pass the House, where Democrats can only afford to lose three votes.
But its $ 2 trillion in tax increases are bigger than expected and, combined with other savings such as increased IRS enforcement, give Democrats a very plausible plan to pay it off completely 3 $ 500 billion in new spending. And it could be effective responds to moderates like Manchin who have expressed concerns about the cost of the Democrats’ spending plans.