After weeks of Democratic infighting over the price tag and feasibility of paying for Sen. Bernie Sanders’s (I-Vt.) $3.5 trillion budget, on Monday the House Ways and Means Committee released key information on its tax plan under the legislation. The tax plan would change the current flat rate corporations pay in taxes to a marginal tax scheme, with rates as high as 26.5 percent at the highest threshold of revenue, and would dramatically increase marginal tax rates for individuals, trusts and estates, and capital gains.
Some Democrats have previously expressed concerns on how the bill would be financed.
On Thursday, Rep. Stephanie Murphy (D-Fla.), a member of the Ways and Means Committee, raised concerns about the bill. While she said she supported many of its measures, she professed serious reservations about some aspects of the legislation.
Murphy said she felt that the process had not been treated transparently enough, noting that members of Ways and Means had not gotten most of the subtitles of the legislation. The most concerning absence to Murphy was the lack of information on how the government would pay for the legislation, adding, “I don’t think we can afford to do everything.”
In another blow, Sen. Joe Manchin (D-W.Va.), after being somewhat opposed to the legislation for months, confirmed on Sept. 12 that he will not be voting for the legislation. In the past, Manchin expressed similar concerns to Murray’s, recommending that his party take a “strategic pause” to evaluate the legislation’s long-term consequences as the national debt and inflation continue to skyrocket.
In the committee’s public release today, Democrats’ specific plans to pay for the legislation are at last clear.
Since the introduction of the resolution in the Senate, Democratic proponents of the bill have assured skeptics that the legislation would be completely paid for by increasing taxation on the wealthy and corporations after congressional Republicans used their majority during President Donald Trump’s term to significantly cut these rates.
In 2017, Republicans used the reconciliation process—the same filibuster-proof process that Democrats are using now—to pass the Tax Cut and Jobs Act. The legislation lowered the corporate tax rate from its previous 35 percent flat rate to a substantially lower 21 percent flat rate. Democrats, strongly opposed to the legislation, have accused Republicans of raising the deficit with the bill; Speaker of the House Nancy Pelosi (D-Calif.) called it a “Republican tax scam.”
Now that Democrats are in the majority, the party is trying to abandon the flat corporate tax rate altogether in favor of a marginal tax rate, the same scheme used by the IRS to collect income taxes.
Specifically, Democrats’ proposal puts the rate at 18 percent on the first $400,000 of income, 21 percent on income up to $5 million, and 26.5 percent on all income after $5 million.
Still, these rates fall short of the previous corporate flat rate tax of 35 percent before Trump’s tax cut. President Joe Biden had previously proposed a flat-rate 28 percent tax on corporate income, putting the proposal just short of the president’s vision as well.
Dramatic Changes in Marginal Income Tax Rates
The proposal would also increase marginal income tax rates. Since its introduction, Democrats have been adamant that despite its expansive scope and price tag, the budget will have no effect on the tax paid by households with an income of less than $400,000 per year. Under the revenue scheme, Democrats would only change marginal tax rates on the highest income households; but there are several notable changes in the scheme.
First, the bill would increase the top marginal tax rate for all filers to 39.6 percent.
Under the current tax arrangement, single filers pay 35 percent on income of $207,351–$518,400. Democrats’ revenue scheme would lower the threshold to a 39.6 percent rate on all income over $400,000. Heads of households currently have the same structure, but for these filers the marginal rate would increase to 39.6 percent at $425,000 rather than $400,000.
For couples who are married and file jointly, the current tax structure taxes all income between $414,701 and $622,050 at a rate of 35 percent. The Democratic budget would drop that tax benefit dramatically, taxing all joint household income above $450,000 at 39.6 percent.
The legislation would have one of the most substantial effects on married couples filing separately. Currently, such individuals pay a 35 percent rate on all income between $207,351 and $311,025. Under the budget, that threshold would be dropped to $225,000 while the tax rate would be increased to 39.6 percent on all income over that threshold.
Changes to Estate, Capital Gains Tax Law
Estates and trusts with income over $12,500 would also be taxed at the 39.6 percent rate. Currently, these pay 15 percent in taxes for gains between $2,600 and $13,150 and 20 percent on all inc0me beyond this threshold. Under the proposal, these tax rates double or triple.
A long target of Democrats has also been to increase the capital gains tax, taxes on income from stocks, or other investments.
Under standing law, the top capital gains tax rate is 20 percent. But this rate currently applies to single filers who make over $445,850, married people filing separately who make over $250,800, heads of households making over $473,750, and married joint filers making over $501,600.
Democrats’ budget would increase the top capital gains rate to 25 percent.
From The Epoch Times