economy

Tax plan inflames democratic debate in senate over Biden’s $2 trillion spending bill

Tax plan inflames democratic debate in senate over Biden’s $2 trillion spending bill

House passage of Democrats’ $2 trillion education, healthcare and climate package has inflamed an intraparty debate about whether the bill gives overly-generous tax benefits to high-income Americans. At the center of the dispute is the House plan to raise the $10,000 cap on the deduction for state and local taxes to $80,000 through 2030. A small but committed group of lawmakers from high-tax states like New York and New Jersey have for years insisted on repealing the $10,000 cap, which Republicans put into place as part of the 2017 tax law. But even lifting the cap has tilted the tax benefits in the bill toward high-income Americans, alarming other Democrats who have themselves promised to raise taxes on the wealthy, not cut them. Republicans have also pilloried the provision, branding it as a handout to wealthy Democratic supporters. “I think it’s bad politics, it’s bad policy, Sen. Bernie Sanders (I., Vt.) said to reporters. “The Democrats correctly have campaigned on the understanding that amidst massive income and wealth inequality, we’ve got to demand that the wealthy start paying their fair share of taxes, not give them more tax breaks. Mr. Sanders is among a group of senators eyeing an income cutoff, possibly $400,000 or $500,000, for taxpayers to qualify for claiming the deduction. Defenders of the House provision say it would provide needed tax relief to households in high-cost areas that they say Republicans politically targeted in the 2017 law. Some Democrats also fear that the cap would limit how high states could raise their own tax rates to pay for public services, though New York and New Jersey have raised rates since the cap went into law. House Speaker Nancy Pelosi (D., Calif.) said lifting the cap will help support states’ finances. “This isn’t about who gets a tax cut, it’s about which states get the revenue that they need in order to meet the needs of the people, and that is a fight that I will continue to make, Mrs. Pelosi said this week. The state and local tax deduction is one of several issues in the bill that Democrats are hoping to iron out in coming weeks in the Senate, where the party will need unanimous support to approve the legislation. Sen. Joe Manchin (D., W.Va.) has demanded that Democrats cut four weeks of paid leave provided in the House bill, for example, and temporary immigration protections in the House bill may run afoul of Senate parliamentary rules. Setting the tax-deduction cap at $80,000 without an income limit means that its benefit goes to even the highest-income households, who all would save $25,900 more in taxes than they do under current law. Nearly one-third of the benefit of that $80,000 cap would go to the top 1% of households, according to the Tax Policy Center. The inclusion of the higher state and local tax deduction, or SALT, cap means the bill overall would provide a net tax cut to many wealthy households. According to the congressional Joint Committee on Taxation, more than two-thirds of households with income over $1 million would get a tax cut in 2022. That picture changes in 2023, after corporate tax increases take effect and burden high-income shareholders. By then, a majority of households with income over $1 million get tax increases, but 46% would still have net tax cuts. On the whole, the bill would still raise taxes at the top of the income distribution, thanks to corporate tax increases, surtaxes on income above $10 million and other changes to taxes on closely held businesses. Even when including the SALT change, the top 0.1% of households would see a 5.9% decrease in after-tax income in 2022 and 7.5% in 2023, according to the Tax Policy Center. The figures have caused consternation for some Democrats. The only Democrat who voted against the bill in the House, Rep. Jared Golden of Maine, cited the bill’s SALT provision as a reason for opposing it, criticizing its “tax giveaways to millionaires. “The American people didn’t send us to Washington to cut taxes for rich people, Sen. Michael Bennet (D. Colo.) wrote in a tweet. But any changes to the House plan will have to deal with the lawmakers who have championed raising the state and local tax deduction. Democrats’ very narrow control of the House and Senate have empowered advocates for a larger SALT deduction to threaten to withhold their support for the legislation as leverage. Rep. Mikie Sherrill (D., N.J.) said raising the cap to $80,000, the final in a number of considered proposals in the House, had the necessary political support for House passage. If the bill is amended in the Senate, it will need to again pass the House before going to President Biden for his signature. “That’s what we’re comfortable with in the House, she said. “That’s what can make it through the House. Over the 10-year period, the $80,000 cap isn’t a net tax cut, because it’s actually a tax increase starting in 2026, when the $10,000 cap is currently set to lapse, according to the nonpartisan Joint Committee on Taxation. One of the frustrations for Democrats in the debate is that many of them had hoped to raise more taxes on high-income Americans as part of the legislation. But many of those proposals, including raising the top marginal income rate, raising the top capital-gains rate and taxing appreciated assets at death, faced their own political problems. Some Democrats are hoping to revive some of those measures, including an effort to limit the ability of private-equity managers to have their carried interest profits taxed as capital gains, by adding them back to the legislation in the Senate. “Those are the things I’m looking at, said Rep. Bill Pascrell (D., N.J.), who has pushed for raising the SALT cap. This story has been published from a wire agency feed without modifications to the text Download.

economy 2021-11-22 Livemint