What You Need to Know
- A millionaire surtax would place a 5% levy on individual incomes in excess of $10 million and an additional 3% tax on those over $25 million.
- House lawmakers settled on raising the cap on the federal deduction for state and local taxes, or SALT, to $80,000 from the $10,000 imposed by Republicans in 2017.
- The plan puts a $10 million cap on individual retirement accounts, after concerns that some wealthy individuals were using these tax-advantaged vehicles to skirt IRS bills.
The House on Friday passed a roughly $2 trillion bill incorporating the core of President Joe Biden’s economic agenda — ramping up funding for the social safety net and increasing taxes on corporations and the wealthy — sending it on to the Senate, where it’s likely to be significantly reshaped.
The legislation will likely undergo several more changes, both to get all 50 members of the Senate Democratic caucus on board with it, and to comply with the chamber’s complicated rules to avert a filibuster, in face of Republican opposition.
Here’s where the bill, which passed the House without any GOP support, stands and what is likely to change:
Corporate Taxes: The bill imposes a 15% minimum corporate levy on companies that have traditionally been able to pay little-to-no taxes because they were eligible for a long list of credits and deductions. It also includes a 1% excise tax on companies when they buy back their own stock. The 21% corporate rate is left untouched, maintaining a key part of President Donald Trump’s 2017 tax law.
International Tax Changes: A 15% global minimum tax on corporations’ foreign profits is set — implementing a key portion of a deal made with approximately 140 countries earlier this year. There’s also a series of changes that would increase taxes on companies that shift their profits offshore.
Levies on High Earners: A millionaire surtax would place a 5% levy on individual incomes in excess of $10 million and an additional 3% tax on those over $25 million.
There’s a 3.8% investment income tax for high earners who own businesses and a limit on how business owners can use losses to reduce their taxes. The plan puts a $10 million cap on individual retirement accounts, after concerns that some wealthy individuals were using these tax-advantaged vehicles to skirt IRS bills.
SALT Deduction: After weeks of haggling, House lawmakers settled on raising the cap on the federal deduction for state and local taxes, or SALT, to $80,000 from the $10,000 imposed by Republicans in 2017. The higher cap would be in place through 2030, and then revert to $10,000 in 2031.
This is likely to undergo changes in the Senate, where key members, including Bernie Sanders of Vermont and Bob Menendez of New Jersey, said they prefer to focus on limiting the universe of people able to claim the SALT deduction to those earning under a certain amount — potentially around $400,000 a year.
IRS Enforcement: The bill would give the Internal Revenue Service an additional $80 billion to hire more auditors, improve customer service and modernize technology. Democrats hoped to pull in an additional $400 billion in new revenue from cracking down on tax cheats and increasing compliance.
But CBO concluded IRS enforcement would raise $207.2 billion over a decade, or $127.2 billion after subtracting the $80 billion in additional funding for the agency, according to a footnote in the estimate. However, it is not included in the official tally because of certain budget estimating rules.
Child Tax Credit: The bill would extend through 2022 the extra $250-to-$300 monthly payments per child that parents earning up to $150,000 are now getting. The legislation also makes the tax credit permanently refundable. Democrats are hoping the popularity of the enlarged benefit means they can extend it further in the future.
Child Care: The plan approves funding for children under five, as well as increases in wages for childcare workers. The amount parents pay for child care would be capped, to ensure that no family pays more than 7% of their household income.