President Joe Biden will make remarks at the White House on October 28, 2021 on his proposed Build Back Better bill for social spending
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The White House on Thursday released a framework for a bill on social and climate spending worth $ 1.75 trillion – and would fund more than half of that through tax reforms for wealthy Americans.
The plan would increase revenue by collecting a tax surcharge from those who earn more than $ 10 million a year, increasing taxes for some high-income business owners, and strengthening tax enforcement by the IRS, according to the draft.
The framework was the result of months of negotiations between moderate and progressive Democrats. Taken together, proposals targeting wealthy taxpayers would generate about $ 1 trillion of the nearly $ 2 trillion in total revenue that will be generated. (The rest would come from new taxes on companies and share buybacks, for example.)
President Joe Biden said the legislation was paid in full and would help reduce the federal budget deficit.
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“I don't want to punish anyone for their success; I am a capitalist, ”President Biden said in a speech on Thursday. "All I ask is you pay your fair share."
Biden reiterated that households earning less than $ 400,000 a year would not pay a penny in federal taxes and would likely receive a tax cut from the proposal through items such as the improved child tax credit and reduced childcare and health care costs.
The framework dispenses with details that go beyond the high-level details. But it appears to be abandoning many of the tax proposals released by the House Ways and Means Committee last month, even though the overarching policy goal of appealing to the rich is the same.
For example, the current top tax rate of 37% or the top rate of 20% on investment income (with the exception of multimillionaires who are subject to the proposed surcharge) will not be increased. It would also not impose any new required distributions from large retirement accounts or, for example, change the rules on inheritance taxes and trusts.
"It's way stripped down," said Kyle Pomerleau, a senior fellow at the American Enterprise Institute, a right-wing think tank. "It waives many of the things that they proposed in the House of Representatives bill."
Of course, given their wafer-thin majorities, the proposal needs the almost unanimous support of the Democrats in the House and Senate, and it is unclear whether it has the party's full support.
Here are some of the key provisions of the Build Back Better framework.
Millionaire and Billionaire Surcharge
The plan would impose a new surcharge on the top 0.02% of Americans, according to the White House.
A 5% surcharge would apply to adjusted gross income greater than $ 10 million and an additional 3% surcharge (or a total of 8% surcharge) would apply to income greater than $ 25 million.
It is estimated that the hammer will raise $ 230 billion over 10 years.
"This is one of the most important provisions here, directly taxing the rich," said Garrett Watson, senior policy analyst with the Tax Foundation.
It would affect a much larger number of people than any other tax introduced by the Senate Democrats on billionaires' wealth earlier this week. That tax would have affected about 700 people, while Watson's rough estimate would have affected perhaps hundreds of thousands of people.
In essence, an 8% surcharge would mean that top earners would pay a top 45% tax rate on wages and corporate income. (You currently pay 37%.)
They would also pay a top tax rate of 28% on long-term capital gains and dividends, plus the existing 3.8% net capital gains tax for high earners. (Taxes on long-term capital gains apply to the growth of stocks and other assets that are sold after a year of ownership. The top tax rate is currently 20%.)
The important thing is that the tax should be applied to "adjusted gross income" rather than "taxable income," said Watson.
That's because the AGI measure reflects income before it is cut for charitable contributions and other tax breaks – meaning the surcharge would include more taxpayers.
Enforcement by the IRS
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The Democrats' plan would invest in enforcement by the IRS to close what is known as the tax loophole.
The top 1% evade more than $ 160 billion in taxes annually, according to the White House.
Compared to other taxpayers, Watson says they get a larger proportion of their income from opaque sources, such as certain business agreements, that are not as easily subject to tax returns or withholding tax.
The IRS would hire law enforcement officers trained to prosecute wealthy tax evaders, revamping 1960s technology, and investing in taxpayer services to help ordinary Americans, according to the White House.
It estimates these measures would raise $ 400 billion over 10 years – the largest increase in sales in the proposal.
However, some wonder how the legislature came to this sales figure. The Treasury Department last month estimated that an IRS investment of $ 80 billion would generate revenue of $ 320 billion in a decade.
As part of the Build Back Better framework, there are two provisions regarding corporate income.
One would add a Medicare surcharge of 3.8% on all transit company income, and another would cap corporate loss tax relief for the wealthy.
It is estimated that the reforms would raise $ 250 billion and $ 170 billion respectively over a decade.
Currently, the owners of most transit companies are subject to a 3.8% self-employment tax or a net wealth tax. (Such companies, such as sole proprietorships and partnerships, pass their income on to the owners' individual tax returns.)
However, some profits (namely those of suburban companies) are not subject to the 3.8% net investment tax created by the Affordable Care Act to fund Medicare's expansion. The proposal would fill that void for wealthy entrepreneurs.
The second suggestion is also a little vague about business losses. But the House of Representatives' tax proposal last month, which contained a similar measure, might provide a clue; it would permanently prohibit excessive corporate losses (i.e. net tax deductions in excess of their corporate income).
This applies to companies that are not structured as a corporation.
This is a developing story. Check back for updates.