Democrats Anticipate Reducing Biden Proposed Tax Hike to Get It Passed
Senate Democrats are working on shrinking the tax increases in President Joe Biden’s current economic package in order to get it passed in the coming weeks.
The changes under consideration would pare down some of the tax measures passed by the House last year and could mean that both U.S. corporations and wealthy households end up facing smaller tax hikes than Biden and Democrats initially envisioned. Half of the amount would be for new spending and the other half would be tax increases to cut the deficit by $500 billion over 10 years.
There is a plan to keep the top-line figure for the legislation at roughly $1 trillion, which means that the Senate will make substantial cuts to the $1.5 trillion package of tax hikes that passed the House last year. That gives lawmakers the freedom to revise some of the most controversial elements of the plan to make them more palatable to critics. Democrats also plan to use savings from a prescription drug plan to offset some of the costs.
On the tax front business groups are pushing Democrats to exclude income from pass-through businesses, such as partnerships or LLCs, from being subject to a surtax for high earners. The House legislation calls for a 5% levy on incomes above $10 million and an additional 3% on incomes above $25 million. The current top tax rate for that income is 37%.
Remaining intact in the Senate plan is a proposal to create a 1% excise tax on stock repurchases by publicly traded companies, according to the people. That levy has been subject to less scrutiny and pushback from companies, largely because it is a smaller tax compared to the other measures under consideration.
The Senate Finance Committee is close to finalizing language reworking a provision of the proposed 15% global minimum levy, which would allow corporations to blend their overseas tax payments to meet the minimum threshold, rather than requiring that level to be met in each country in which the company operates, the people said. The committee is also considering giving companies additional time before they have to comply with international tax law changes.
The Finance Committee is also considering a change to the 15% domestic minimum tax on financial profits, also known as the book tax, that would exclude a business’s deductions for the investments they make when calculating the tax, the people said. This would mean many companies would face lower IRS bills from the book tax.
The $1 trillion maximum amount is also likely to serve as a reality check for Biden and his allies in Congress. Senate Democrats, who will have to pass the legislation without Republican votes, have been told in recent weeks not to expect a grand package and that it was being narrowed down, according to a person familiar with the talks.
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