House Democrats described tax increases on businesses and high net worth individuals seeking to fund their desired investments in social safety nets and climate policy in a bill released on Monday.
The most significant changes include increasing the corporate tax rate from 21% to 26.5% on income over $ 5 million, and the highest marginal personal tax rate for those earning. over $ 400,000 per year and those earning over $ 450,000. Including married couples from 37% to 39.6%. in 2022. Additionally, the IRS will receive about $ 80 billion over the next decade to strengthen law enforcement, another way Democrats plan to generate additional revenue.
According to estimates from the Center on Budget and Policy Priorities, tax increases will exceed $ 2 trillion over the next decade. The White House aims to offset some of the estimated $ 3.5 trillion spent on reducing child poverty and tackling climate change, among other goals.
The Ways and Means Committee, which drafts the tax law, will debate and mark the bill this week. The provisions may change before the final bill is passed.
The proposed tax hike is well below what President Joe Biden himself has suggested, as Democrats try to appeal to members of his party who do not want to raise rates.
Here are some of the key provisions of the current project.
corporate tax change
The maximum corporate tax rate proposed by Ways and Means of 26.5% is lower than the 28% rate recommended by President Joe Biden. That said, it also cuts the tax rate for businesses earning less than $ 400,000 to 18%.
Among other changes, Ways and Means also proposed to increase the minimum tax on foreign income of U.S. corporations from 10.5% to 16.6%. Biden had asked for 21 percent.
personal tax change
In addition to raising the maximum rate to pre-2017 levels, the proposal includes a 3% surtax on adjusted gross household income of more than $ 5 million per year.
In addition, it increases the top federal long-term capital gains rate to 25%, from the current 20% for people earning $ 400,000 and married couples earning $ 450,000 per year. (Long-term capital gains are taken from valuable assets sold after they have been held for at least one year.) People earning less income will not be affected. This is also lower than the 39.6% rate sought by Biden.
Some changes have also been made to the retirement tax code for high net worth investors. The first prohibits people earning more than $ 400,000 with individual and 401 (k) style retirement accounts from contributing more money to those funds. These investors will also have a new minimum required distribution each year.
Second, the bill prohibits people earning more than $ 400,000 a year from converting individual retirement accounts and 401 (k) type plans into Roth accounts, and completely eliminates the “Roth mega-backdoor” strategy. . East. These strategies are often used by wealthy investors to pay less tax on investments.
And the proposal would also close a cryptocurrency tax loophole with respect to capital gains taxes while treating other securities, rather than assets, the same. Currently, investors One can sell the crypto at a loss and claim a tax benefit, then buy back the asset immediately if it bounces back. The proposed change means that they will not be able to redeem the same property immediately.
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