House Democrats are planning to propose raising the corporate tax rate from 21% to 26.5%. This is in line with efforts to raise funding sources for President Joe Biden’s major social spending programs.
RELATED: Senate Democrats Want Taxes on Stock Buybacks and CEO Pay
Democrats Want to Raise the Corporate Tax Rate
Democrats on the House Ways and Means Committee are still searching for new tax revenues to pay for Biden’s $3.5 trillion programs. One proposal is to increase the corporate tax rate from 21% to 26.5%. While this is a substantial rise, it’s also lower than the 28% rate that Biden wanted.
Meanwhile, the highest rate for capital gains will increase from 20% to 25% instead of the original proposal to cap it all the way to 39.6%.
For Americans with adjusted gross income exceeding $5 million, Democrats are proposing a 3% surcharge. In addition, the Democrats are also looking at new taxes for cryptocurrency and additional taxes for tobacco products.
Tax Proposals Will Raise $2.9 Trillion
Sources point to a document circulating among members of Congress that cites preliminary estimates. It said that the new tax proposals would raise $2.9 trillion in revenue.
The total includes $700 billion in revenue and cost savings from Medicare drug prices. In addition, the proposal also adds in $600 billion from the estimated economic growth effects of the spending increase.
Plus, the House Democrats’ proposal also expects to raise an estimated $16 billion by limiting deductions for executive compensation.
It also includes a projected rise of $96 billion in higher taxes on tobacco, nicotine, and e-cigarette products. Finally, new taxes for cryptocurrency based on general tax rules will generate $16 billion.
Higher Tax Rates Compared To Trump Administration
The new tax plan will also reduce the $24,000 estate and gift tax exemption for married couples by the end of 2021. This is four years earlier than the scheduled cuts passed under former President Donald Trump. Incidentally, Congress under the Trump administration passed the reduction of the corporate tax rate from 35% to 21%.
The House Ways and Means proposal emphasized that it meets two goals laid out by President Biden. First, it doesn’t raise taxes on Americans earning under $400,000.
Second, it rolls back some of Trump’s tax incentives for corporations and the wealthy. However, the House proposal does not mention anything about lifting the $10,000 cap on the state and local tax deduction.
Getting Tax Proposals Passed in the House
The proposal remains a draft and is still subject to horse-trading. Democrats shouldn’t expect an easy passage, considering their razor-thin majority in both Houses. Even within the party, the proposal remains on shaky ground from moderates.
Any Democrat proposal will only need three Democrat defections in the House and zero in the Senate to lose. Only through a budget reconciliation process can the Democrats get passage and bypass Republicans.
Earlier Sunday, West Virginia Senator Joe Manchin, a moderate Democrat with a crucial Senate vote, remained opposed to the $3.5 trillion plan. He said the price tag is too much.
In addition, he doesn’t want to tinker with the corporate tax rate. Instead, Manchin proposed a lower program worth $1.5 trillion.
Reducing The Proposal
As early as now, some Senate Democrats are bracing for reductions in the Biden proposals. They prefer raising revenue toward businesses rather than individuals.
Last Friday, Senate Finance Committee Chairman Ron Wyden (D-OR) introduced two new proposals. The first is an overhaul of tax treatment for business partnerships.
The second is a 2% excise tax on stock buybacks. The latter was co-sponsored by Senate Banking Committee Chairman Sherrod Brown (D-OH).
Watch the Bloomberg Politics video reporting that House Democrats are set to propose a corporate tax rate to 26.5%:
Loading ...Do you agree with the proposals for increasing the corporate tax rate to pay for social spending programs? In addition, how do you feel about raising taxes in general?
Let us know what you think. Share your opinions on the matter below.