Tax Increase Proposals are Starting to Gel

There has been a lot of talk about what the tax increases in the “human infrastructure” bill will look like. There are President Biden’s campaign proposals, proposals from the progressive wing of the Democratic party, and the moderate’s proposals.

Then, individual Senators and Congress people have weighed in on what they expect the final bill to contain – 25% instead of 28% corporate tax rate, repeal of State and Local Tax (“SALT”) deduction limitation, reporting rules for cryptocurrency, etc. The one thing Democrats are clear about is the need for near complete agreement within their party, because they will need every Democratic vote in the Senate and all but three votes in the House if they hope to get anything passed.

So where are the tax increases going to land? Nobody really knows. The legislative process is messy, and this one will be no different just because the Democrats are negotiating with themselves.

We have seen recently detailed proposals from the powerful Senate Finance Committee regarding international taxes (August 25, summarized in a 6 pages here) and partnership taxes (September 10, summarized in a one-pager here). Also, Sen. Ron Wyden, chairman of the SFC, said recently that he expects the bill to “fully close the carried interest loophole in the tax code.” His committee’s complex proposal (August 5, summarized in a one-pager here) regarding carried interest would raise an estimated $63 billion in revenue over 10 years. Another of his proposals would assess a 2% excise tax on stock buybacks of publicly-traded companies (press release here), a proposal that supposedly would “prioritize real investment in the economy over wall street shareholder giveaways.” One other proposal, released August 5, would modernize the tax treatment of derivatives (JCT description here).

Reading the Tea Leaves

The latest we are hearing is that the bill would raise the corporate tax rate from 21% to 26.5%, a slight reduction from President Biden’s 28% proposal but still above the developed-world average of 23.5%. Press reports indicate that the increase would apply only to large corporations, and that reduced rates of 18% or 21% would apply to smaller corporations, depending on income.

The bill would raise the top tax rate on long-term capital gain from 20% to 25%, which is substantially lower than President Biden’s 39.6% proposal. No new information on whether this proposal will be retroactive to April 28, 2021, but the House proposal makes it retroactive to September 13, 2021.

The top individual tax rate would rise to 39.6%, as expected, and there would be higher sin taxes on things like tobacco and vaping.

There is also much talk about “slimming down” the proposals from $3.5 trillion to about $2.5 – $3 trillion, something that should appeal to moderates but is sure to irk the progressives.

As this article was going to press, the House Ways and Means Committee released legislative text of its budget reconciliation proposals that include various individual and corporate tax increases (see its press release and section-by-section summary). The House proposals are summarized here.

If you have questions regarding the proposals, please
reach out to your Withum advisor.

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