New legislation, the Middle Class Tax Cut Act, "would significantly overhaul the individual income tax system starting in 2026," according to Jeff Bush of The Washington Update.
"While the title suggests middle-class relief, the actual effect would be a significant tax increase on high earners and capital income," Bush told ThinkAdvisor in an email. "This would increase the progressivity of the U.S. tax code."
Rep. Shri Thanedar, D-Mich., the bill's sponsor, told ThinkAdvisor in an emailed statement that the bill "would ensure American households won't pay a dime of taxes on their first $100,000 of income and gradually increases tax rates on higher income brackets while closing tax loopholes the wealthiest among us frequently use to dodge their tax responsibilities."
The bill "would sharply raise the standard deduction, increasing certain base amounts to as much as $75,000 and $50,000, thus protecting a large portion of income from taxation," according to Bush.
At the same time, it "would replace the existing tax bracket system with a new five-tier structure that begins at 25% and climbs to a top marginal rate of 70% for high earners," Bush explained. "It would also eliminate the preferential tax treatment of long-term capital gains, meaning investment income would be taxed at ordinary income rates—potentially as high as 70%."
Estates and trusts "would be subjected to the same progressive tax structure, hitting a 70% rate at relatively low income levels," Bush added.
The bill combines a large increase in the standard deduction with much higher marginal rates for upper-income households and investors, Bush said.
With Republicans controlling the House, the Senate and the White House, "there is effectively no pathway for this legislation to become law," Bush opined.
"The governing majority has consistently opposed both higher top marginal rates and the elimination of preferential capital gains treatment. As a result, this proposal is not a serious legislative vehicle in the current environment," according to Bush.
Rather, the bill is a "framing bill," Bush added, and "is designed less to pass and more to define the debate."
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