Here are six things you need to know about the plan.
No wealth taxes
The United States has an income tax system and not a wealth tax system like the one advocated by Senator Elizabeth Warren (Massachusetts), and that will not change as proposed by House Democrats. With only a tiny majority in the House, and at the mercy of their moderates, Democrats are focusing on raising existing income taxes on the rich instead of making more controversial proposals to go after accumulated wealth.
His plan would raise the higher marginal income tax rate to 39.6%, from 37%; impose a new 3% additional rate on people earning more than $ 5 million; and raising the rate of capital gains to 28.3% from 23.8%, among other changes.
There are proposals from the Biden administration, such as one, aimed at the ability of the rich to pass on assets to tax-free heirs. Few advocate provisions on the “intensified death base” that the administration wants to restrict, but it has politically powerful advocates, such as farmers, and curbing tax cuts has always been a very long shot.
All this is good news for uber rich people, like Jeff Bezos, who make their money not with big salaries, but because they own companies that become extremely valuable. Democrats are proposing to tighten a type of wealth tax: the property tax, by halving the exemption rate, to $ 6 million for couples and making other changes.
Companies would pay a lot, investing in 2017 profits
Republicans cut the corporate tax rate to 21% from 35% as part of the Tax Cuts and Employment Act. But they also simultaneously created new taxes on the foreign earnings of large companies. The net effect was that large companies received a projected tax cut of $ 330 billion, according to nonpartisan accountants in Congress.
Democrats are not proposing to completely reverse this reduction in business rates: they would raise it again to 26.5 percent. But they are also tightening the taxes that Republicans created on the foreign profits of multinationals and added others. The combined result is a $ 963 billion tax increase on businesses, according to official estimates, which companies complain about is nearly three times the tax cuts they received in 2017.
This would happen as corporate tax receipts, which fell after the TCJA, are now recovering thanks to higher profits. Business payments are expected to reach $ 268 billion this year, not far from the $ 297 billion they paid the year before as a result of Republican tax cuts.
Democrats would say these official estimates underestimated the number of companies leaving the TCJA because it included tax increases that would likely be reversed later by Congress. And many don’t think companies paid their share just before the Republican Party cuts.
Democrats are also cutting taxes
Their tax hikes are striking, but Democrats also want to cut a lot of taxes. They want to expand their new monthly child tax credit payment program and make a recent expansion of the income tax credit permanent (although some of these increases count technically as an expense, not a tax cut). .
They have a long list of clean energy tax credits, including new subsidies for the purchase of cars, trucks, and electric bicycles, along with a number of provisions to do things like promote affordable housing, help state governments, and subsidize wages. of child care workers.
Some of the cuts they have proposed are amazing. Richard Neal, president of Ways and Means, wants to create a new deduction for union members by allowing them to repay up to $ 250 in dues. And it has a proposal to help subscribe to the salaries of local news journalists, with a special pay cut for its editors.
The SALT debate was left in higher hands
Neal’s plan doesn’t address the issue of what to do with the $ 10,000 limit on state and local tax deductions imposed by Republicans in 2017, and his committee has no plans to address that either. Instead, he is giving the issue to Pelosi, who will take care of it after Ways and Means approves the rest of the legislation.
The issue has deeply divided Democrats, with lawmakers in states with high taxes demanding their repeal, and others who are disappointed when it comes to reducing a tax that would primarily benefit the rich and confuse the Democrats’ message.
Pelosi will probably not reveal a plan to address the limit until shortly before the entire spending and tax plan goes to the House floor, leaving little time for debate. This could also mean that there will be some surprise payments added at the last minute to cover the cost of whatever you decide.
Facilitating or removing the limit altogether will be expensive, as it can reach hundreds of billions of dollars. A Pelosi spokesman said: “As work continues between the House, Senate and White House on this and other outstanding but critical issues, fixing the Republican SALT attack on progressive state and local governments continues being a priority for House Democrats in the final reconciliation package. “
There are many clashes ahead with the Senate
Democrats in both houses have been working behind closed doors to narrow their differences, hoping to speed up consideration, but it is clear there will be fights on several fronts. Senate Finance President Ron Wyden (D-Ore.), For example, wants to do much more to pursue the wealth of billionaires, proposing, among other things, an annual tax on their unrealized profits.
Under pressure from moderates, Neal also gets the profits of multinationals abroad from what Wyden or the Treasury Department want.
Many of Neal’s colleagues in the House are unhappy with the administration’s proposal to raise taxes on U.S. multinationals above what it calls on other countries to be part of the tax boost world minimum. Wyden also wants to impose other taxes on companies, such as a new tax on stock redemptions.
The two tax writers are also engaged in delving into what to do with a mix of energy tax provisions. Neal wants to significantly expand existing provisions, while Wyden wants to consolidate more than 40 outages specializing in some technology-neutral provisions.
But Wyden’s ambitions will also run into hurdles on the part of the moderates in his own room, that is, Manchin and Senator Kyrsten Sinema of Arizona.
Some surprises from Neal
It’s fair to say that Neal is not the love of the left. Many progressives believed his heart never pursued former President Donald Trump’s tax returns and questioned his commitment to raising taxes. Neal himself left plenty of room for this speculation by hearing calls from other Democratic leaders to raise taxes on the rich and saying little about his own plans.
In his defense, Neal said he was less interested in organizing tax seminars than trying to figure out what combination of tax increases could cover Democrats’ costs while they could pass the House, where Democrats can only afford to lose three. votes.
But their $ 2 trillion tax increases are larger than many expected and, combined with other savings from increased IRS enforcement, offer Democrats a totally plausible plan to pay in full. $ 5 trillion in new spending. And that could be effective retorts to moderates like Manchin who have expressed concern about the cost of Democrats ’spending plans.