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WASHINGTON — President Biden’s new plan There’s nearly $2 trillion in tax increases on corporations and the rich to pay for the climate change and social policy package. But many more controversial and untested proposals What Democrats have thought about in recent weeks has been left on the cutting room floor.
The latest proposal reflects the fact that moderate Democrats are reluctant to support certain ideas aimed at raising money, including taxing billionaires’ unrealized capital gains. Providing Internal Revenue Service more information about the financial situation of taxpayers. Ultimately, the package of tax increases adds some new wrinkles to curb maneuvers that allow tax avoidance while mostly opening the quadrant of more traditional tax policies.
“As for who they were targeting, they decided to target a larger population of very wealthy people and only take money from a very small group of super-rich people,” said Howard Gleckman, a senior fellow at Urban. -Brookings Tax Policy Center.
Here’s a look at what’s in the new tax plan:
Taxing the rich.
Instead of a wealth tax or a special tax on billionaires, Mr. Biden introduced a new “additional tax” on income for multimillionaires and billionaires. It would effectively raise the top tax rate on ordinary income to 45 percent for the highest earners.
Those with adjusted gross income of more than $10 million will face a 5 percent tax in addition to the 37 percent marginal tax rate they currently pay. Those who earn more than $25 million will face an additional 3 percent tax.
The Biden administration estimates that these tax increases will reach the top 0.02 percent of taxpayers and generate $230 billion in tax revenue within a decade.
The plan also includes people earning more than $400,000. gaps to avoid paying the 3.8 percent Medicare tax. The White House estimates that the provision alone will generate $250 billion in tax revenue over the next 10 years.
Enabling companies to pay more.
Mr. Biden, borrowing a page from his campaign playbook, 15 percent minimum tax in profitable companies with little or no federal tax liability. Many profitable companies can reduce or eliminate their tax liabilities by using tax credits, deductions, and prior losses that can be carried over. The new tax will apply to companies with more than $1 billion in what’s called book income, which companies report to their shareholders, but not to the IRS.
The plan aims to ensure that nearly 200 companies that do not pay corporate taxes have to pay some money to the federal government.
The White House estimates that the provision, which is included in a plan submitted by Senate Democrats, will generate additional $325 billion in tax revenue over ten years.
Chye-Ching Huang, executive director of the New York University Center for Tax Law, said on Thursday He said the proposal could mean that financial statements on which book income is reported could become the new “tax avoidance focus.”
A separate offer is also 1%. surcharge on corporate share repurchases. Buybacks have increased with the stock market as cash-rich firms like Apple, JPMorgan Chase, and Exxon spend billions of dollars each year to buy back shares in their own companies and then retire. This can help raise the company’s stock price, enriching both shareholders and company executives, whose wages often depend on their firm’s stock performance.
The provision is expected to collect $125 billion over 10 years.
Finishing the tax race to the bottom.
Mr. Biden’s framework would raise the tax paid by companies on foreign earnings to 15 percent and would be in line with the United States. A global minimum tax completed at the 20-person group summit This week in Rome.
The Biden administration initially wanted to double the current rate from 10.5 percent to 21 percent. Once settled at 15 percent, the U.S. ratio will match what was accepted by the 136 countries participating in the global agreement, blunting criticism that American companies will face a competitive disadvantage.
The global agreement aims to end corporate tax havens and stop what Treasury Secretary Janet L. Yellen describes as the “race to the bottom” of falling corporate tax rates around the world.
To deter companies from finding ways to evade the tax, the plan will impose a penalty rate on foreign companies located in countries that are not part of the deal.
The Biden administration estimates that the international plans will raise $350 billion over ten years.
Narrowing the tax gap.
White House and Treasury Department officials struggled for months. Forcing a proposal to narrow the $7 trillion gap on taxes owed but not collected by individuals and businesses. Management initially wanted to invest $80 billion in additional enforcement personnel in the IRS, asking banks to provide more information about their clients’ finances.
Under the new proposal, the IRS would receive more money to expedite audits of people who earned more than $400,000. However, the new bank reporting proposal, which the Treasury described as critical to its ability to capture hidden income, was blatantly absent. A lobbying campaign from the banks drew a backlash from lawmakers, including West Virginia Democratic Senator Joe Manchin III, whose vote was critical to passing the general package.
Treasury officials and a group of Senate Democrats continue to meet with Mr Manchin to narrow down the proposal to what he can support.
Currently, the plan to strengthen IRS enforcement is expected to raise $400 billion over ten years from the $700 billion in the original proposal.
Maybe reduce the deficit.
Mr Biden said on Thursday his plans were “financially responsible” and claimed that if the proposals became law, he would cut the country’s budget deficit.
The proposed $2 trillion tax increase would more than offset $1.85 trillion spent on housing, childcare and climate initiatives. However, nonpartisan raters such as the Congressional Budget Office have in the past offered less rosy projections of how much revenue the Biden administration’s proposals could actually generate.
Additional IRS enforcement personnel will take years to gain momentum, and without the additional bank information the Treasury Department requires, audits may be less effective.
Some Democratic lawmakers are still fighting for the inclusion of provisions that could actually cost money, including the partial or temporary restoration of SALT, the state and local tax cut that Republicans capped in 2017. the cost of the overall package.
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