- House Democrats are poised to unveil a plan that rolls back key parts of the Trump tax law, per a draft of the changes obtained by Insider.
- The tax increases would raise $US2.9 ($AU4) trillion in new revenue from wealthy Americans and large businesses.
- The draft outlined increases in the corporate tax rate along with a new 3% “surtax” on wealthy Americans.
- See more stories on Insider’s business page.
House Democrats are poised to propose hitting large firms and the wealthiest Americans with a spate of new tax increases that would raise $US2.9 ($AU4) trillion in tax revenue to finance a sprawling social spending plan, according to a draft proposal circulating among Democrats on the House Ways and Means Committee that was obtained by Insider.
America’s highest earners and biggest companies would bear the brunt of the tax hikes, which amount to a rollback of many provisions approved by President Donald Trump four years ago.
Still, many of the increases are not as aggressive as what President Joe Biden originally laid out earlier this year in his push towards a fairer tax system.
One person familiar with the tax provisions confirmed its contents but was granted anonymity because they could not speak publicly. A spokesperson for the House Ways and Means Committee did not respond to a request for comment.
One measure hewed closely to the Biden plan: A 39.6% top tax rate on Americans who individually earn over $US400,000 ($AU543,848), and the same rate for married couples who earn over $US450,000 ($AU611,829) jointly.
Investors, however, wouldn’t see as big of a hike as they feared: Unlike previous proposals that would nearly double the capital gains tax rate, House Democrats would lift the top capital gains rate – which taxes profits from assets like stocks and bonds – up to just 25%. It currently sits at around 20% for the highest-earning Americans.
Many of the wealthiest Americans’ incomes come from assets like capital gains – not salaries – that are taxed at lower rates than wages, according to the liberal-leaning Center on Budget and Progressive Priorities.
However, the capital gains increase seems to target a wider group and spares those earning below $US400,000 ($AU543,848), aligning with Biden’s tax pledge. The White House had previously said a capital gains hike would only apply to individuals making over $US1 ($AU1) million a year.
The latest plan would also impose a 3% “surtax” on people with an adjusted gross income of over $US5 ($AU7) million. Senator Elizabeth Warren has long pushed for a tax targeting America’s wealthiest; her Ultra-Millionaire Tax Act would place a 2% tax on households with a net worth of $US50 ($AU68) million to $US1 ($AU1) billion. Households with a net worth over $US1 ($AU1) billion would see a 3% tax. However, it’s unclear how or if that “surtax” aligns with Warren and other progressives’ proposals for an outright wealth tax.
On the corporate side, Democrats are set to propose a 26.5% rate, an increase from the current 21% level that was locked in under the 2017 GOP tax law. But it’s a smaller hike than Biden proposed and would only apply to firms earning more than $US5 ($AU7) million. Other businesses with “incomes” below $US400,000 ($AU543,848) would see their rate fall to 18%. Others would see their tax rates unchanged.
The plan does include Biden’s $US80 ($AU109) billion in funding over 10 years to strengthen IRS enforcement on America’s highest earners. Earlier this week, researchers at the Treasury Department found that the top 1% of earners evaded around $US163 ($AU222) billion in taxes each year.
Charles Rettig, the agency’s commissioner, has said that the tax gap – taxes that are owed but not collected – could actually be over $US1 ($AU1) trillion, well above the agency’s official estimate of $US441 ($AU600) billion.
Biden’s funding would ramp up enforcement on the wealthiest. On the whole, the number of agents devoted to working on sophisticated tax evasion enforcement has fallen by 35% over the last decade, according to Treasury. The IRS’s budget has fallen by 20%, while audits fell by 42% from 2010 to 2017.
According to a White House fact sheet, there’s been an 80% decline in the audit rate for those making over $US1 ($AU1) million a year from 2011 to 2018.