Democrats are frantically searching for new tax ideas that can unify the party and fund President Joe Biden’s Build Back Better program.
House Democrats on Monday unveiled a tax plan that deviates from an earlier Biden proposal in key ways, offering a lower corporate tax rate than that proposed by the president and omitting a levy aimed at inherited wealth .
Representative Richard Neal (D-Mass.), Chairman of the House Ways and Means Committee, proposed a corporate tax rate of 26.5%, slightly lower than the 28% rate favored by Biden, as part of a sprawling bill that would partially roll back the Republicans’ corporate tax changes made in 2017.
Democrats are trying to generate $ 3.5 trillion in revenue to offset the cost of a series of new safety net policies in the Build Back Better bill, including monthly payments to parents, universal preschool, the free community college and paid family leave.
Democrats see the bill as their last and best chance to extend the federal backstop while controlling the White House and both houses of Congress. They compared the bill to the New Deal of the 1930s, which created Social Security retirement insurance – one of the most successful and popular federal programs of all time.
On the household side of the tax code, Biden had proposed taxing investment income at the same rate as working income for those earning more than $ 1 million, as well as repealing the so-called “base increase “which cancels out taxes on remitted assets descending from one generation to the next.
Lower tax rates for investment income, or capital gains, are the reason some very wealthy people pay less tax than workers with regular jobs. But Biden’s capital gains proposals have come under fierce attack from lobbyists and questionable claims that family farms are suffering.
Instead of taxing capital gains on death, House Democrats have proposed a 3% surtax on income over $ 5 million. The surtax appears to have been designed to be more palatable to conservative Democrats who fear being accused of harming farms.
Senator Ron Wyden (D-Ore.), The chairman of the Senate Finance Committee, who is working on his own version of the tax law, suggested on Monday that he did not like the House bill.
“It’s important to take into account that billionaire heirs may never pay tax on billions of stock gains,” Wyden said in a statement to HuffPost. “The nurses, firefighters and teachers who pay their taxes with every paycheck know the system breaks when billionaire heirs never pay tax on billions in stock gains.”
The surtax would likely increase as much as a stronger base repeal, according to Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, and would likely affect such wealthy households.
“But repealing the strengthened base would have been a better, more efficient and more growth-friendly tax policy,” Goldwein said in an email.
The loophole of the reinforced base is ineffective, the CRFB and many others have arguedbecause it causes people to hold assets for too long in order to avoid capital gains tax.
But it’s not just House Democrats who are hesitant about capital gains. A spokesperson for Senator Jon Tester (D-Mont.) told HuffPost last week that the senator would not support the taxation of capital gains on death even if farms were specifically exempt.
Wyden has proposed new taxes on share buybacks and partnership income as an apparent alternative.
Democrats have tiny majorities in the House and Senate, which means party leaders must satisfy both progressive and moderate members in order for the bill to be tabled on the president’s desk. Appeasing the moderates can anger progressives, and that’s the risk Neal is taking with Monday’s draft.
“They missed it. It’s that simple,” said Morris Pearl, chairman of pro-tax group Patriotic Millionaires and former chief executive of investment firm BlackRock, in a statement on the bill. is not what the American people voted for when they elected Joe Biden as president. “
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