(Bloomberg) – Democrats are likely to prove successful in raising individual income tax rates and stepping up the trials on wealthy Americans as they work on revising U.S. tax law in the coming months.
This is a key finding from a survey of 15 current and former White House and Congress employees who specialize in tax policy that Bloomberg completed this month. The tax on unrealized capital gains envisaged by Senate Finance Committee Chairman Ron Wyden was polled deemed impossible to get through Congress.
President Joe Biden plans what would mean the biggest tax hike since 1993 to help fund infrastructure, energy and social initiatives as part of his longer-term follow-up to the $ 1.9 trillion pandemic relief package. Faced with Republican opposition, Democrats need to secure the support of their moderate members in the 50:50 Senate, making it politically difficult to pull the tax program together.
“There’s a pretty strong consensus on taxing the rich and corporations more heavily – but pretty strong consensus means you have to get all 50,” said Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center and former attorney for the Joint Tax Committee. “Tax increases are difficult, even good tax increases. Tax increases hurt some people. “
Increasing corporate tax, which was supposed to be an integral part of the Biden Plan, was seen as slightly more difficult than increasing the individual rates, with the expanded land levies just behind. The most likely tax change of all, according to the experts, is an increase in lending to families, which would increase the overall cost of the program.
Another easy win, the survey found, is strengthening enforcement with the Internal Revenue Service. Treasury Secretary Janet Yellen said Tuesday that, along with tax policy changes to administrative plans, she would help fund increased IRS debt collection efforts.
The following is a ranking of the tax measures, from the most likely to the least likely mid-term elections in November 2022. Respondents were asked whether each item is likely to be enacted, whether it will pass or not. With three points for likely, a top score is 45.
1. Family tax credits (45 points)
All 15 respondents thought an expansion of family tax credits was likely. This was already part of the pandemic aid law signed earlier this month. This included a one-year extension of the Child Tax Credit, Dependent Care Tax Credit, and Earned Income Tax Credit.
Democratic lawmakers want to make these changes permanent – which the Tax Foundation estimates would cost $ 1.6 trillion in child tax credit alone. Democrats hope the 2021 surge will prove so popular with voters that they can get an extension beyond this year.
2. IRS audits (44)
Audit rates with the IRS have fallen in recent years, and Commissioner Chuck Rettig told a congressional body earlier this month that the agency has lost 15,000 law enforcement personnel since 2010. Democrats in Congress have suggested ways to increase exam levels by increasing the agency’s enforcement workforce and increasing exam rates for top earners. A recent study found that collecting unpaid taxes alone could generate $ 175 billion in additional tax revenue from the top 1%.
3. Individual income (42)
On the campaign trail, Biden called for the highest income tax rate to be raised to 39.6% for those earning $ 400,000 or more. However, the administration has not yet established specific thresholds for individuals and households.
4. Corporation tax (38)
Biden is pushing to reverse some of President Donald Trump’s massive corporate tax cut from 2017, increasing it from 21% to 28%. According to the Urban-Brookings Tax Policy Center, that could raise $ 727 billion in a decade. Some respondents were skeptical that the magnitude of a spike could come through Congress, suggesting it could end by 25%.
5. Estate tax (36)
Biden’s election campaign proposals reduced the threshold above which the estate tax applies and increased the tax rate to 45%. David Kamin, deputy director of the National Economic Council of the White House, separately pointed out in an interview last week that the government wants to fill a “gap” for the ultra-rich known as “step-up-in-base”. the assets such as stocks and real estate at market prices instead of their original cost, thereby reducing tax liabilities.
5. Made in America credit (36)
Fifth on the list, most likely to go into effect, is a Democratic push for tax breaks for companies building factories in the US or increasing domestic manufacturing capacity. Both changes would examine two priorities: eradicating wealth inequality and creating incentives for work at home.
6. SALT CAP (34)
Since Trump’s 2017 tax revision limited federal state and local tax (SALT) depreciation to $ 10,000, Democrats have been trying to reverse the change. It has proven to be a controversial and expensive task as the benefits largely go to the top earners. Respondents said it was possible Democrats could push a change through, but it could just be a higher cap, rather than a complete repeal. Yellen said Tuesday she would work with lawmakers to tackle the “unequal treatment” stemming from the border.
7. Minimum tax on foreign income (31)
Biden’s campaign plan saw the tax rate on profits made by U.S. companies overseas rise from 13% to 21%, undoing a 2017 change made by Trump, which is $ 442 billion, according to Urban-Brookings’ estimates brings in. Republicans and business officials say increasing tax rates on both domestic and offshore income could lead American companies to leave for other countries where tax laws are more favorable. The idea of a global minimum tax is also currently the subject of negotiations between the US and nearly 140 other countries in the Organization for Economic Co-operation and Development. As a result, the US could also make some changes to international tax law to meet an expected resolution later this year.
8. Capital Gains Tax (30)
Biden made higher taxes on capital gains a core part of his tax plan for those earning $ 1 million or more. “The richest Americans can completely avoid taxes on large amounts of their income, which come from their wealth,” said Kamin in an interview. Biden has discussed a plan that would increase the rate of investment income from 23.8% to 39.6%, which could result in estimated sales of $ 373 billion. The idea is politically difficult, however, as Congress has granted special breaks for capital gains since 1921.
9. Individual prints (24)
Biden’s campaign plan limited tax breaks to 28%, or 28 cents per dollar of income, for those who earn more than $ 400,000. He also called for the restoration of another withholding restriction, temporarily suspended since the Tax Act 2017, preventing taxpayers from using statutory tax maneuvers to avoid taxes entirely. Critics say it harms small business owners who pay most of their taxes through their personal tax returns.
10. Minimum tax on profits (22)
Biden has attempted to address situations where large tech companies like Amazon.com Inc, Netflix Inc., and Zoom Video Communications Inc. were largely able to avoid paying federal income taxes in a few years, even though they made a profit by using legal maneuvers. including write-offs on business expenses to reduce the tax burden. Biden campaigned for a tax of at least 15% on corporate book income. The change would create decades of differences in the way companies calculate their finances for tax purposes and face significant hurdles to becoming law.
11. Income tax on high earners (20)
Biden campaigned for higher wage taxes on income over $ 400,000 to increase social security funding. Currently, wage taxes are only collected on income up to $ 142,800. However, the idea is unlikely to match the rules for a budget vote law – the vehicle that would be used by Democrats to defeat a Republican filibuster – making their likelihood low.
12. Wealth Tax Lite (17)
While Biden avoided Senator Elizabeth Warren’s progressive wealth tax plan, there is broader support for some efforts to target wealth stocks. Wyden, an Oregon Democrat and head of the powerful Senate Finance Committee, has urged the White House to review its plan to require wealthy individuals to pay taxes on unrealized gains on stocks, bonds and other assets annually rather than selling them. The idea has been criticized for being very difficult for the IRS to manage and enforce.
With the government’s specific tax plans pending, many Wall Street banks have yet to set their expectations. “We don’t have an in-house view of the funding mix for an eventual infrastructure bill, but all public comments point to higher taxes in the core corporate, household and high-income capital gains rates,” said JPMorgan Chase & Co .. strategists of John Normand wrote in a note Friday.
– With support from Nancy Cook.