Democrats are scrambling to craft their multibillion-dollar social spending program while seeking to avoid any points of contention that could threaten party unity.
Many key aspects of the package relate to taxes. Democrats want to expand tax credit extensions for low- and middle-income households that were enacted under President BidenJoe BidenElder pledges to replace Feinstein with a Republican if he wins the California recall election. Defense and National Security Overnight – Out of Afghanistan, But Stuck in Limbo On The Money – Delta Variation Explodes Labor Market MOREthe coronavirus relief law earlier this year. They also want to pay for the spending and tax cuts they are proposing – which focus on areas such as health care, child care and the climate – by raising taxes on corporations and people. high income individuals.
The House Ways and Means Committee, which has jurisdiction over taxes, is expected to begin considering its part of the bill next week. The panel has yet to release legislation.
Democratic lawmakers will need to ensure that all of their provisions can garner the support of moderates and progressives, as Democrats will need nearly every party vote in the House and 50 in the Senate.
This is easier said than done, especially as some members have started to worry about several of Biden’s proposed tax increases. Lawmakers will also need to determine how they wish to design provisions that would lower taxes.
Here are five tax questions to watch as Democrats draft the legislation.
Child tax credit
Democrats broadly support the extension of the one-year extension of the child tax credit passed earlier this year. However, lawmakers face questions about how long an expansion will last.
As a result of Biden’s $ 1.9 trillion coronavirus relief bill, the maximum credit amount increased from $ 2,000 to $ 3,600 for children under 6 and from $ 3,000 for older children. Credit was also made fully available to lower-income households, and the IRS began issuing loan prepayments on a monthly basis. These changes are only in place for 2021.
Many Democratic lawmakers want to make the credit expansion permanent. But the longer the extension of the extension, the higher the cost.
The White House has proposed to make full credit permanently available to low-income households while extending the increased credit amount only until 2025. The Treasury Department estimated that this would cost nearly $ 450 billion over a year. decade.
“I would prefer permanence, but I know there are divergent views from the White House and others,” the Ways and Means Committee chairman said. Richard nealRichard Edmund Neal Progressives Prepare to Launch Counterattack in Tax Fight Democrats Prepare for New Spending Battles on Biden Pelosi’s Agenda Plays Risky House Vote to Consider .5T Budget Approved MORE (D-Mass.) Told reporters in late August.
Corporate tax rate
Biden proposed to increase the corporate tax rate from 21% to 28% after the GOP tax law in 2017 reduced it from 35% to 21%.
Some moderates have indicated that they want a lower rate hike than that proposed by Biden. In particular, the senator Joe manchinJoe ManchinPresented by Schneider Electric – Overnight Equilibrium / Sustainability – Mars rover pierces first successful sample Alyssa Milano lashes out at ‘Texas Taliban’ over new abortion law Over 100 Democrats support age lowering legislation 60 PLUS Medicare eligibility (DW.Va.), a key moderate, said he would prefer a 25% corporate tax rate.
The smaller the increase in the corporate rate, the less revenue generated could be used to offset the cost of Democrats’ spending priorities. The Treasury Department estimated that raising the corporate rate to 28% would bring in about $ 858 billion over 10 years.
Democrats are expected to include some type of change to the $ 10,000 limit on state and local government tax deduction (SALT) that Republicans passed as part of their 2017 tax law. But it remains to be seen exactly how. lawmakers plan to roll back the cap.
Many lawmakers in high-tax states, such as New York, New Jersey, and California, strongly oppose the cap, and some have threatened to vote against the final bill if it does not repeal the limit. of $ 10,000.
But repealing the cap completely is expensive, and analysts from all ideological backgrounds have estimated that it would primarily benefit higher-income households. When the House voted on a bill to temporarily repeal the cap in 2019, a handful of Democratic lawmakers, including moderates and progressives, voted against it.
Democrats have several options if they want to make changes to the cap without eliminating it entirely. For example, they could decide to increase the limit, or they could cancel the limit only for people below a certain income level.
Capital gains changes
Democrats have major issues to resolve when it comes to capital gains taxes, which are taxes people pay on investment gains.
One of the issues is where to set the maximum capital gains tax rate. The current maximum rate is 20%, but Biden has proposed raising it significantly so that capital gains and ordinary income are taxed at the same rates for individuals and households with income over $ 1 million. Biden proposed a maximum rate for ordinary income of 39.6%.
Some Democratic lawmakers would prefer a smaller increase in the capital gains rate. For example, Manchin said he would prefer a 28% increase.
A second question concerns the tax treatment of capital gains on death. Capital gains are not taxed on death, and when heirs sell investments they have inherited, they only have to pay tax on the difference between the sale price and the value of the investments at the time they received them.
Biden proposed taxing capital gains on death, with a $ 1 million per person exemption. According to the president’s proposal, taxes would not be due on gains on the value of businesses and family farms until the businesses are sold or cease to be family owned and operated.
Even though Biden’s proposal includes provisions to protect family farms, some Democrats in heavily agricultural areas have raised concerns about the proposal.
A document obtained by The Hill outlining the Senate Finance Committee Democrats’ income generation options calls for more generous exemptions than those proposed by Biden. The document provides for an exemption of $ 5 million per person from the taxation of capital gains on death. It also suggests a potential exemption of $ 25 million per couple for family farms, which would be in addition to the general exemption.
A separate item on the Senate Democrats’ list calls on billionaires to pay taxes on their investment earnings each year, as opposed to when the investments are sold. Biden did not come up with a similar proposal.
International tax changes
Biden and many Congressional Democrats have challenged the international provisions of the GOP’s 2017 tax law and want to increase taxes on foreign profits of U.S. businesses. But Democrats have yet to reach consensus on all the details.
The White House has proposed to increase the minimum tax on foreign profits of American companies to 21%. At the same time, the administration is negotiating an agreement with other countries, through the Organization for Economic Co-operation and Development, for an overall minimum tax rate of at least 15%.
A group of House Democrats, including several members of the Ways and Means Committee, expressed concerns last month that the rate of the U.S. tax was increased to a level above the rate established by a multilateral agreement.
secretary of the treasury Janet YellenJanet Louise Yellen Climate presses Biden to replace Fed chairman Medicare reserves remain unchanged despite COVID-19 pandemic Social Security reserves are expected to run out sooner than expected MORE defended the White House proposal on Friday.
“The United States can impose a 21% tax on the foreign profits of American companies, which is still far less than what main street companies pay that make their profits at home and make our companies always more. competitive than they were before ” she tweeted.