Breaking down Democrats' latest tax plans: Open Markets Institute's Goldstein

The White House issued a framework for a $1.75 trillion social and climate spending bill on Thursday — and would finance more than half of it from tax reforms aimed at wealthy Americans.

The plan would raise revenue by levying a tax surcharge on those making more than $10 million a year, raising taxes for some high-income business owners and strengthening IRS tax enforcement, according to the outline.

The framework was the product of several months of negotiations between moderate and progressive Democrats. Together, proposals targeting wealthy taxpayers would raise about $1 trillion of the nearly $2 trillion of total revenue being raised. (The rest would come from new taxes on corporations and stock buybacks, for example.)

President Joe Biden said the legislation was fully paid for and would help reduce the federal budget deficit.

“I don’t want to punish anyone’s success; I’m a capitalist,” President Biden said in a speech Thursday. “All I’m asking is, pay your fair share.”

Biden reiterated that households earning less than $400,000 a year wouldn’t “pay a penny more” in federal taxes and would likely get a tax cut from the proposal, via elements like the enhanced child tax credit, and reduced costs on child care and health care.

The framework omits specifics beyond high-level detail. But it seems to abandon many tax proposals issued last month by the House Ways and Means Committee, even while the overarching policy goal of targeting the wealthy is the same.

For example, the framework doesn’t raise the current top 37% income tax rate or 20% top rate on investment income (with the exception of multimillionaires subject to the proposed surtax). It also wouldn’t impose new required distributions from big retirement accounts or alter rules around estate taxes and trusts, for example.

“It’s far slimmed down,” said Kyle Pomerleau, a senior fellow at the American Enterprise Institute, a right-leaning think tank. “It forgoes a lot of things they’d proposed in the House bill.”

Of course, the proposal needs near-unanimous backing from Democrats in the House and Senate, given their razor-thin majorities, and it’s unclear whether it has the party’s full support.

Here are some of the major provisions in the Build Back Better framework.

Millionaire and billionaire surtax

The plan would impose a new surcharge on the top 0.02% of Americans, according to the White House.

There would be a 5% surtax on modified adjusted gross income of more than $10 million, and an additional 3% (or, a total 8% surtax) on income of more than $25 million, according to a summary of provisions released Thursday.

The surtax is estimated to raise $230 billion over 10 years. It would kick in after Dec. 31.

“This is one of the main provisions in here that directly taxes the wealthy,” said Garrett Watson, senior policy analyst at the Tax Foundation.

It would affect a much larger number of people than another tax floated by Senate Democrats earlier this week on the wealth of billionaires. That tax would have affected about 700 people. There were 22,112 tax returns reporting income of more than $10 million in 2018, according to most recent IRS data.

Essentially, an 8% surtax would mean the highest earners pay a top 45% federal marginal income tax rate on wages and business income. (They currently pay 37%.)

They’d also pay a top 28% top federal rate on long-term capital gains and dividends, plus the existing 3.8% net investment income tax on high earners. (Taxes on long-term capital gains apply to growth on stocks and other assets sold after one year of ownership. The top tax rate is currently 20%.)

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[RussInGA]

Increase of value on an asset is NOT income.. Stop letting them speak that lie

[shawnbrown]

Could he sound more uncomfortable talking about this?

[garry]

Although I agree there are far too many tax loopholes, taxing unrealized gains is just dumb. What about claiming unrealized losses then??? This is just a can of worms best left closed

[jaehparrk]

instead if raising taxes, why dont we freaking DECREASE AND REDUCE taxes of ALL workers?

[maurreese]

Be warned this slippery slope was also used by proponents of income taxes back in 1913 I believe. They said that only the millionaires would pay it at the time but fast forward to today we all pay income taxes for the most part. The slippery slope of allowing government to tax unrealized profit or assets is so dangerous because if we allow this how long until it affects Americans when they decide they need even more money? The government already lied back in 1913 on personal taxes and I don’t see them keeping their word to not have this affect us or future generations.

The tax code purposely incentivizes particular behaviors from having children to investing in real estate and building businesses. It’s not perfect but no system can ever be perfect, the one that we have today does far more good for far more people than any alternative currently.

[ericeandco]

Maybe the US should stop going into bigger and bigger debt and stop spending money outside the US rather than the many many taxes and government fees we have. If all the taxes and fees taken by every level of government were paid once a year, we’d have a revolution. Deferred taxes doesn’t mean you’re not paying taxes, the government still gets their tax money. Tax reform is a bunch of smoke and mirrors.

[kevinjones]

You seriously don't think Amazon will increase all costs to customers??

[MichaelJones-tqof]

Taxes need to assessed on foreign corporations that trade on our stock exchanges to generate capital and not pay into our taxes.

[robertm.]

Oh and an increase in tax on the corporations just moves them off shore.

[bobo]

Corporation sells stuff we want we need
Raise their expenses tax & compliance fees
Price of things services they sell goes up
Who really pays? We when we buy stuff

[Bigjoe]

What a ditz. Its one thing to tax assets with certainty value and quite another to tax uncertain value. Asset of certain value is almost income, asset that have uncertain value is WIP - work in progress. A firefighter's or teacher's paid salary does not fall and not working to build other things.

[ramtallanj]

555B for clean energy out of which 36% is for workers unions made cars. So almost 200B are given to the EV cars made by UAW union cars. That is a useless expenditure in the name of Clean Energy and climate investments. This 200B they can used elsewhere or reduce the hike in tax to billionaires by 2% tax and max tax to 40% but not 45%. Congress is loosing balance. Elon Musk has potential to make America better than these politicians. I hope Congress is going to use their common sense in approving the bill.

[tatianaschoenfield]

How can taxation of billionaires cover the spending plan long term please? Eventually, the middle class will be taxed. Half of the spending plan goes toward climate and green energy, yet roads are being widened for more cars …

[rodneyferringer]

You know what options billionaires have the we don't.
They have the option to leave and take their billions and corporations else where.

[willinguyen]

This lady speaks with contempt and disrespect about "space cowboy billionaires". Noticed she didn't mention Police in her group of overtaxed jobs.

[patrickbateman]

Keep letting babysitters give you Econ advice.