How Biden’s $ 2 trillion in taxes increases target companies and the wealthy
WASHINGTON – President Biden’s new plan to pay off his climate change and social policy agenda includes nearly $ 2 trillion in tax increases on businesses and the wealthy. But many of the more controversial and untested proposals Democrats have considered in recent weeks have been left on the cutting room floor.
The latest proposal reflects the reality that moderate Democrats are unwilling to support certain fundraising ideas, including taxing the unrealized capital gains of billionaires and giving the Internal Revenue Service better insight into the fundraising ideas. taxpayer finances. Ultimately, the package of tax increases primarily increases the dial of more conventional tax policies, while adding new wrinkles to curb maneuvers that allow tax evasion.
“I think in terms of who they’re targeting, they’ve decided to target the larger population of very wealthy people and not just get the money from a very small group of super wealthy people,” Howard Gleckman said. , Principal Investigator at the Urban Center for Fiscal Policy, Brookings.
Here is an overview of the new tax plan:
Tax the rich.
Instead of a wealth tax or a special tax on billionaires, Mr Biden implemented a new “surtax” on the incomes of multimillionaires and billionaires. This would effectively raise the top tax rate on ordinary income to 45% for the highest incomes.
Those with adjusted gross income over $ 10 million would be subject to an additional 5% tax on top of the 37% marginal tax rate they already pay. Those earning more than $ 25 million would face an additional 3% surtax.
The Biden administration estimates that these tax increases would hit the richest 0.02% of taxpayers and generate $ 230 billion in tax revenue over a decade.
The plan also aims to ensure that people earning more than $ 400,000 cannot use loopholes to avoid paying a 3.8 percent Medicare tax. The White House estimates that this provision alone will generate $ 250 billion in tax revenue over the next 10 years.
Make companies pay more.
Borrowing a page from his campaign handbook, Biden wants to impose a 15% minimum tax on profitable businesses that have little or no federal tax to pay. Many profitable businesses are able to reduce or eliminate their tax liability through the use of tax credits, deductions, and past losses that can be carried forward. The new tax would apply to companies with book income over $ 1 billion – profits that companies report to their shareholders but not to the IRS
The plan is to ensure that the 200 or so businesses that do not pay corporate income tax will have to remit money to the federal government.
The White House estimates that the provision, which was also included in a plan presented by Senate Democrats, will generate an additional $ 325 billion in tax revenue over a decade.
Chye-Ching Huang, Executive Director of the Tax Law Center at New York University, said Thursday that the proposal could mean that financial statements in which accountable income is reported could become the new “locus for tax evasion”.
A separate proposal would also institute a 1% surtax on corporate share buybacks. Buybacks have increased with the stock market, with cash-rich companies like Apple, JPMorgan Chase and Exxon spending billions of dollars each year to buy back and then retire shares of their own companies. This can help drive up the company’s stock price, enriching both shareholders and company executives whose compensation is often tied to their company’s stock market performance.
The provision is expected to raise $ 125 billion over 10 years.
End the tax race to the bottom.
Mr Biden’s executive would increase the tax companies pay on foreign income to 15%, bringing the United States into compliance with a global minimum tax that is being finalized at the Group of 20 summit in Rome this week.
The Biden administration initially wanted to double the current rate to 21% from 10.5%. By setting at 15 percent, the US rate would match what has been agreed to by the 136 countries participating in the global deal and may blunt criticism that US companies will face a competitive disadvantage.
The global deal aims to end corporate tax havens and stop what Treasury Secretary Janet L. Yellen describes as the “race to the bottom” of lower corporate tax rates around the world.
To deter companies from finding ways to avoid tax, the plan would impose a penalty rate on foreign companies based in countries that are not part of the agreement.
The Biden administration predicts that international plans would bring in $ 350 billion over a decade.
Reduce the tax gap.
White House and Treasury Department officials have spent months pushing forward a proposal to narrow the $ 7 trillion gap in taxes owed by individuals and businesses but not collected. The administration initially wanted to invest $ 80 billion in additional IRS line staff and require banks to provide more information about their clients’ finances.
Under the new proposal, the IRS would get more money to speed up audits of people earning more than $ 400,000. However, the new bank declaration proposal – which the Treasury called critical for its ability to track hidden income – was clearly absent. A lobbying campaign by the banks has sparked a huge backlash from lawmakers, including Senator Joe Manchin III, a Democrat from West Virginia whose vote is critical to passing the comprehensive package.
Treasury officials and a group of Senate Democrats continue to negotiate with Mr Manchin to narrow the proposal in a way he could support.
As it stands, the plan to strengthen IRS enforcement is expected to raise $ 400 billion over a decade, up from $ 700 billion in the original proposal.
Reduce the deficit, perhaps.
Mr Biden said Thursday his plans were “fiscally responsible” and said the proposals, if passed, would reduce the country’s budget deficit.
The $ 2 trillion in proposed tax increases would more than offset the $ 1.85 trillion in spending on housing, child care and climate initiatives. However, non-partisan markers such as the Congressional Budget Office have in the past offered less optimistic projections of what the Biden administration’s proposals might actually generate in revenue.
It will take years for the additional IRS law enforcement staff to be operational, and audits might be less effective without the additional banking information sought by the Treasury Department.
Some Democratic lawmakers are also still fighting for the inclusion of provisions that could actually cost money, including a partial or temporary restoration of SALT, the state and local tax deduction that Republicans capped in 2017. Last minute additions such as these could add to the cost of the set.