What You Need to Know
- The House Ways and Means Committee approved tax increases on corporations, high earners and capital gains.
- It also approved new limits on large IRAs; changes to the SALT deduction cap are still in question.
- Differences remain with legislation being developed in the Senate; lawmakers expect weeks of wrangling ahead.
The biggest set of U.S. tax increases in a generation took a major step forward on Wednesday with approval by the House Ways and Means Committee of $2.1 trillion in new levies mostly focused on corporations and the wealthy.
The vote largely along party lines — there were no Republican votes in favor — brings President Joe Biden’s $4 trillion longer-term economic agenda one step closer to enactment. The tax package will help pay for the biggest expansion in social spending in decades, in a budget bill currently penciled in at $3.5 trillion.
While the committee agreed to key elements, including tax increases on businesses and the wealthy, an extension of refundable child tax credits along with a bevy of incentives for clean energy, differences remain with legislation being developed in the Senate. With slim majorities in both chambers, Democrats expect weeks of wrangling to smooth out the disputes.
“We celebrate success in this nation. But we can also ask the biggest companies and the ultra-wealthy to contribute a bit more to the common good,” Ways and Means Chairman Richard Neal said. “While the increases that we propose will go a long way in responsibly paying for our planned investments, the rates will still remain lower than they were before to the 2017 tax law.”
Among key measures yet to be determined is addressing the $10,000 cap on the federal deduction of state and local taxes, or SALT. Neal on Monday had agreed to “meaningful” changes from the 2017 GOP-imposed measure that largely affects high-tax, Democratic-run states. His panel punted SALT talks to Speaker Nancy Pelosi to resolve later, likely at the House Rules Committee, which governs the chamber’s floor action.
After his committee voted on the tax hikes, Neal said “conversations continue” on how to address SALT in the final package.
“Obviously before we come to final passage on anything we are going to have to address that issue,” he added.
He said it is “hard to say” how long it would take to come to an agreement.
Representative Tom Suozzi, a New York Democrat and fierce advocate for the deduction’s restoration said, “I have spoken with the chairman. I’ve spoken with the speaker, I’ve spoken with” Senate Majority Leader Chuck Schumer “and I’m confident that we will resolve the issue of SALT.”
For businesses, the legislation approved by Ways and Means would:
- Increase the top corporate tax rate to 26.5% from 21%, while offering a lower rate to smaller businesses
- Extend tax rules on sales of equities to cryptocurrencies and commodities for the first time
- Largely leave untouched breaks for oil and gas companies, in a move that angered environmental groups
- Boost taxes on overseas earnings for U.S. multinational companies, by increasing a minimum levy enacted in 2017 during the Trump administration. It would also reduce an exemption for some of that income
- Reinstates a key debt-refinancing tool for state and local governments and creates a Build America Bonds-style debt program
- Top marginal income tax rate is restored to the 39.6% that preceded the 2017 GOP tax overhaul signed by President Donald Trump
- A 3% surtax is imposed on incomes of more than $5 million
- Capital gains rate rises to 25% from 20% for transactions by high-income individuals made after Sept. 13, 2021
- New limits are set for large individual retirement accounts
- A boost to the net investment income tax will generate an estimate $252 billion
- The doubling of the estate tax exemption enacted by Trump would come to an end in 2022
- The up-to-$3,600 per year monthly child tax payment Democrats enacted this year will be extended through 2025
The bill on net is estimated to raise $871 billion, after the value of the tax breaks are taken into account. Democrats say they will be able to pay for additional social spending in the so-called reconciliation package by counting some $600 billion in savings from Medicare spending on drugs, along with funds from increased tax enforcement and added revenue stemming from the faster economic growth that’s anticipated as a result of the overall bill. The drug pricing proposal failed to pass another committee Wednesday because of opposition from Democratic moderates, raising questions about its viability.