This week, Congressional Democrats are knee-deep in the trenches of negotiations over the final details of President Biden’s Build Back Better Agenda. The President’s initial $3.5 trillion proposal included new spending for social programs and bold tax increases on the wealthy and corporations, including a tax on billionaires’ unrealized capital gains and significant increases in corporate, income, and capital gains tax rates. But now it has been stripped down to just $1.7 trillion, with a much less ambitious selection of tax increases to accompany the reduced spending. These cuts have come despite the fact that the tax and spending proposals in the BBB Agenda are overwhelmingly popular with the American people.
Last Thursday, the White House released their adjusted plan to bring in $2 trillion in new revenue to offset the package’s expenditures. The new tax proposals in the reconciliation bill involve many different parts, some of which are great and some of which are simply acceptable. Overall, the tax side of the bill is fine, but it’s simply not enough to fundamentally change the tax code to make the wealthy and corporations pay their fair share. Here is a breakdown of its most important elements:
A 15% corporate minimum tax – $325 billion
This corporate minimum tax would put an end to the increasing number of large corporations who use loopholes to avoid paying virtually any federal taxes (remember, 55 of the nation’s largest profitable companies paid no corporate taxes in 2020).
A Millionaire surtax – $230 billion
This surtax seeks to raise taxes on annual gross incomes over $10 million by 5%, and an additional 3% on annual incomes over $25 million, adding up to 8% higher rates for especially high earners. This affects both ordinary income and capital gains income, which is how most really wealthy people make their money.
A 1% surcharge on corporate stock buybacks – $124 billion
Biden’s new proposal includes a new surcharge on stock buybacks at 1%. This would tax buybacks at the same rate as corporate dividends since both are strategies corporations use to funnel profits to their (mostly wealthy) investors.
Closing Medicare tax loophole on wealthy – $250 billion.
The new tax code would require previously exempt “pass-through” businesses to pay into Medicare. These businesses pass their profits on directly to their wealthy owners and would be required to pay the 3.8% tax that other businesses already do.
Investments in IRS tax enforcement – $400 billion
After a 20% funding cut over the last 10 years left the IRS virtually helpless in the fight against tax fraud, audits of the richest of the rich have all but stopped. Restoring funding would give the IRS the tools they need to legally pursue wealthy tax cheats, and restore a significant chunk of cash to the public coffers.
These provisions, particularly the millionaires surtax, minimum corporate tax, and increased IRS enforcement, add up to a good start, but they’re just the first step in a much longer fight for real tax fairness. Even with all of these changes, our tax code will still give wealthy Americans special treatment.
Here’s what’s left to be done:
- Implement a Billionaires Income Tax. Billionaires should not be able to pick and choose when to pay taxes, and the ability to defer payment on unrealized gains has allowed the richest people in the country to avoid paying almost any taxes. Those gains should be taxed annually, just like working people have to pay taxes on their income every year.
- Equalize tax rates on all income over $1 million, including capital gains and inheritance income. No one who is making their money off of passive investments or by waiting for someone to die should be paying a lower tax rate than someone who actually works for a living.
- Eliminate the stepped-up basis. Wealthy families should not be able to completely avoid paying capital gains taxes on billions of dollars in assets upon transfer.
- Limit the 1031 Exchange. Wealthy real estate developers (like a certain former President) should not be able to build real estate empires by flipping properties and continually and indefinitely deferring capital gains taxes.
- Implement several additional tax brackets over $1 million. Raise marginal rates on incomes over $1 million, $5 million, $10 million, and so on.
We’re going to continue to push Congress to include these additional changes, particularly the billionaires income tax, in their legislation, but all signs point to the reconciliation negotiations being largely finished. It’s up to Democrats to finally come together, pass this bill, and change the tax code to ensure that wealthy people start paying their fair share in taxes.