politics

Biden turns to taxes on corporations, millionaires to pay for agenda

Biden turns to taxes on corporations, millionaires to pay for agenda

WASHINGTON : President Biden outlined $1.85 trillion in proposed tax increases and other revenue generators on Thursday to pay for his social and climate agenda, offering a hodgepodge of strategies designed to navigate red lines set by the administration and congressional Democrats. The plan relies on a 15% corporate minimum tax, surtaxes on the very highest earners, tougher tax enforcement and higher taxes on U.S. companies’ foreign earnings. Meanwhile, ideas that once seemed like a clear consensus within the party—such as raising the 21% corporate tax rate set by Republicans four years ago—were set aside. Progressives had hoped that unified Democratic control of the government could change how the very wealthiest Americans’ capital gains are taxed. Administration officials pressed to have banks report annual account flows to the Internal Revenue Service to improve enforcement. House Democrats had planned to tighten the estate tax and pare back a Trump-era tax deduction for closely held businesses. For now, none of that is happening. Instead, Democrats are leaning on more IRS staffing, the corporate minimum tax, a new 1% tax on stock buybacks and surtaxes on people making more than $10 million and $25 million a year—the top 0.02% of earners, according to the administration. They say that should generate enough money to pay for their pared-back agenda, which includes climate-change initiatives and prekindergarten programs. Essentially, Democrats took the broad collection of tax ideas they had been developing for years, ran them through several filters and moved forward with the mix of policies that survived those obstacles. First, they navigated around Mr. Biden’s own campaign pledge, that taxes won’t go up on households making under $400,000, a promise that doesn’t include the effects of corporate taxes on middle-income workers and shareholders. Second, they grappled with resistance from House Democrats to untested ideas like the tax on billionaires’ unrealized gains proposed this week by Sen. Ron Wyden (D., Ore.). And, most importantly, they negotiated for weeks with moderate Sens. Joe Manchin (D., W.Va.) and Kyrsten Sinema (D., Ariz.), who each objected to different proposals for different reasons. Republicans are unified in their opposition. The resulting revenue increases amount to a 3.6% boost above what the government was projected to collect over the next decade by the Congressional Budget Office this summer. The plans would generate money from corporations and high-income households, but they would do little to tax wealthy people who don’t sell their assets and thus don’t report much taxable income. The financial-services industry’s lobbying campaign helped stop the IRS bank-reporting proposal. Even the scaled-back plan will mean some sharp tax increases for U.S. companies and high-income households. In addition to the 15% corporate minimum tax, the plan would also impose a separate 15% minimum tax on U.S. companies’ foreign income, as part of the U.S. contribution to the international deal negotiated by Treasury Secretary Janet Yellen to boost minimum taxes around the world. The plan would also expand a 3.8% tax on high-income households so that owners of closely held businesses pay it. The surtaxes on the sliver of households making above $25 million would take the top ordinary-income tax rate to at least 45%, the highest since 1986. And the top capital-gains tax rate would hit 31.8%, the highest in more than 40 years. And for all that, it still isn’t clear that the framework announced Thursday will be what gets through Congress. It needs to be turned into final legislative language, evaluated by nonpartisan congressional scorekeepers and accepted by all Senate Democrats and nearly all in the House. The plan also features tax cuts. It includes an extension of the earned-income tax credit and incentives for electric vehicles and renewable energy production. It would extend the expanded child tax credit through 2022, providing monthly payments totaling up to $3,000 a child and $3,600 for children under the age of 6. The child credit would be permanently fully refundable, which means that poor households could get the money no matter how little income they make. The framework includes spending on child care, but it doesn’t include an expanded child and dependent-care tax credit that the House passed, a senior White House official said. Mr. Biden’s framework is a high-level outline. It doesn’t include every tax provision that might end up in legislation that hasn’t been written and completed yet. Items left out of the summary might still end up in a final bill. In particular, it doesn’t mention the $10,000 cap on the state and local deduction. Lawmakers from New York and New Jersey expect some changes to end up in a final bill. One option under discussion would repeal the cap for 2022 and 2023 and reinstate it for 2026 and 2027. That would have no significant effect on the overall size of the bill but it would offer a major tax cut in the near term for high-income households in high-tax states. The framework also relies on some optimistic estimates of how much money can be generated. For instance, it claims that the government can collect $400 billion over a decade by doubling the size of the IRS. That is a Treasury Department figure that includes both direct and indirect effects. The Congressional Budget Office pegged the total at less than half of that last month. Download.

politics 2021-10-29 Livemint