(The Fiscal Times) - House Democrats on Monday released a package of revenue increases that would raise roughly $2.9 trillion over 10 years to help offset the cost of President Joe Biden’s $3.5 trillion economic plan.
On paper, the proposal from the tax-writing Ways and Means Committee would raise about $2.2 trillion through new taxes, with a focus on making businesses and wealthy individuals pay more. The plan also calls for taking steps to reduce drug prices, moves that are projected to save about $700 billion in federal spending.
According to a score from the Joint Committee on Taxation Monday, the proposal would raise slightly less than Democrats project, about $2.1 trillion over 10 years. Once revenue losses associated with the many policy-driven tax breaks in the proposal are taken into account, the plan would provide $871 billion to help offset the cost of other parts of Biden’s agenda, according to the JCT.
Here’s a rundown on some of the key tax proposals in the plan from House Democrats:
The top corporate tax ratewould increase to 26.5%, up from the current 21%. The corporate tax would be graduated, with the top rate applying only to businesses that earn more than $5 million a year. Corporations making less than $400,000 would see their income tax rate drop to 18%, while those between the two incomes levels would see no change in rates. The corporate tax rate provisions would raise $540 billion.
The top individual income tax rate would increase to 39.6%, up from the current 37%, with the top rate kicking in at an adjusted gross income of $450,000 for married couples. The tax increase is projected to raise $170 billion.
A new 3% surtax on incomes over $5 million per year would raise $127 billion.
The top capital gains tax rate would rise to 25%, up from the current 20%, taking effect on September 13, 2021. This increase is projected to raise $123 billion.
The net investment income tax of 3.8% would be expanded to cover passive income, raising $252 billion.
A $500,000 cap on the pass-through deduction, which currently applies to the first 20% of qualified business income, would raise $78 billion.
Reducing the estate state tax exemption, along with other tweaks to the estate tax, would raise $77 billion.
The minimum tax rate on foreign business incomes would rise 16.6%, up from the current 10.5%. Altogether, changes to the tax rules for international corporations would raise an estimated $360 billion.
The IRS would receive $80 billion in additional funding to beef up enforcement and collections, a move that is projected to net $120 billion.
In addition to these main components, the proposal from House Democrats includes a range of other provisions that touch on a variety of areas, including cryptocurrency, tobacco consumption and oil production. Together, these provisions would raise nearly $200 billion.
Tax breaks, too: The legislative package also includes more than $1 trillion in tax breaks that would constitute a major part of Biden’s domestic agenda. An extension of the child tax credit, first passed as part of Covid relief and scheduled to expire at the end of this year, would cost $556 billion over 10 years, according to the Committee for a Responsible Federal Budget. A permanent extension of the expanded Earned Income Tax Credit would cost $135 billion, while a permanent extension of the expanded Child and Dependent Care Tax Credit would cost $98 billion in lost revenues.
Add in a slew of other tax credits touching on infrastructure, education, housing, retirement savings and renewable energy, and the total comes to roughly $1.3 trillion. That would leave “about $943 billion of revenue for other priorities,” CRFB says, in an estimate that’s a bit higher than the one provided by the JCT.
Taking aim at the 1%: Much of the tax plan focuses on the wealthy and the businesses that provide a good chunk of their incomes. The proposal would “overwhelmingly hit the richest 1 percent of Americans with a bevy of new taxes and tax changes affecting their incomes, investments, businesses, estates, retirement funds, and other assets,” says The Washington Post’s Jeff Stein.
Still, the proposal isn’t as far-reaching as some had expected, ignoring, for example, the unrealized tax gains that pass on from one generation to another. And as The Wall Street Journal’s Rich Rubin notes, the proposed taxes would affect business owners who are still involved with their companies more than passive investors. “The result is that passive investors who borrow against their assets and don’t sell would see relatively little change, while active business owners could see sharp increases in their marginal tax rates,” Rubin writes.
The less aggressive approach isn’t sitting well with some critics. “They have a once in a lifetime opportunity to address the egregious, unfair treatment that the wealthy get in the tax code, and the committee has refused to do it,” Erica Payne, president and founder of the Patriotic Millionaires, said, according to The Hill.
White House expresses support: Deputy press secretary Andrew Bates told reporters that the proposal “makes significant progress towards ensuring our economy rewards work and not just wealth by cutting taxes for middle-class families; reforming the tax code to prevent the offshoring of American jobs; and making sure the wealthiest Americans and big corporations pay their fair share.” Bates also said that the plan “meets two core goals the President laid out at the beginning of this process -- it does not raise taxes on Americans earning under $400,000 and it repeals the core elements of the Trump tax giveaways for the wealthy and corporations that have done nothing to strengthen our country’s economic health.”