House Democrats have drafted a package of tax increases that falls short of President Joe Biden’s ambition, an acknowledgement of how politically precarious the White House’s $3.5 trillion economic agenda is for party moderates.
The Democratic proposal would raise the top corporate tax rate from 21 per cent to 26.5 per cent, less than the 28 per cent Biden had sought, people familiar with the matter said Sunday night. The top rate on capital gains would rise from 20 per cent to 25 per cent, instead of the 39.6 per cent Biden proposed, the people said. Including a 3.8 per cent Medicare surtax on high earners, the top capital gains rate would be 28.8 per cent.
The package of proposals, estimated to raise more than $2 trillion, are slimmed down to appeal to business-minded Democrats, many of whom hail from swing districts. And Democratic leaders, who need the party’s full support to push Biden’s agenda through Congress, will almost certainly pare them down further in the weeks ahead. The corporate tax hike drew immediate fire from conservatives, a preview of the fight ahead as the House Ways and Means Committee prepares to meet Tuesday to debate the tax portion of the economic package.
Conservative group Americans for Tax Reform said the corporate rate proposal would lead to immediate increase in consumer utility bills and make the U.S. less competitive on the world stage.
“Democrats want to take the current rate of 21 per cent and raise it to 26.5 per cent, higher than communist China’s 25 per cent and higher than the developed world average of 23.5 per cent This does not even include state corporate income taxes, which average another 4-5 per cent nationwide,” the group said.
A document circulating among members of both parties and obtained by Bloomberg cites preliminary estimates that the new proposals would raise $2.9 trillion in revenue when combined with $700 billion in revenue and cost savings from Medicare drug price changes. To fully pay for the president’s plan, the proposal factors in $600 billion from the estimated economic growth effects of the spending increase.
The proposal would also raise an estimated $16 billion by limiting deductions for executive compensation and $96 billion by higher taxes on tobacco and nicotine products, including e-cigarettes.
Democrats are proposing to include cryptocurrency in general tax rules, to treat it the same as other financial instruments and to prevent taxpayer abuse of the rules. Doing so would generate an estimated $16 billion in revenue. And the proposal would cut in half the $23.4 million estate and gift tax exemption for married filers on Dec. 31, 2021, four years earlier than set in the tax cuts passed under former President Donald Trump. The Ways and Means proposal “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,” White House spokesman Andrew Bates said.
Notably absent from the document is any discussion of lifting the $10,000 cap on the state and local tax deduction, raising questions about the fate of that costly proposal.
The document also doesn’t include Biden’s proposal to impose capital gains taxes on appreciated assets held by wealthy individuals until death, ending a benefit known as “step-up in basis.” Republicans, and even some Democrats, have expressed concern about the proposal’s ability to hurt family farms and businesses, despite Biden’s promises to include protections for them.