What You Need to Know
- The changes could mean that wealthy households and U.S. corporations end up facing smaller tax hikes than first planned.
- Remaining intact in the Senate plan is a proposal to create a 1% excise tax on stock repurchases by publicly traded companies.
- 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.
Senate Democrats are working on shrinking the tax increases in President Joe Biden’s economic package as part of a bid to cut a deal with Senator Joe Manchin and get it passed in the coming weeks, according to people familiar with the talks.
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, the people said.
The discussions about making the tax elements of the package more business friendly come as Senate Majority Leader Chuck Schumer and Manchin, a West Virginia Democrat whose vote is critical in the 50-50 Senate, are close to agreeing that the overall plan will be roughly $1 trillion, according to the people, who asked to remain anonymous because the talks are private.
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.
The talks remain tentative and neither side has fully signed off on the outline.
The decision to keep the top-line figure for the legislation of roughly $1 trillion 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.
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 tech and manufacturing industries would be some of the most affected sectors from the book tax without the change. Companies, including Alphabet Inc.’s Google and General Motors Co., could be subject to the tax if it were to become law in its current form.
Business groups are also 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%.