US tax updates
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Democrats in the House of Representatives want to scale back Joe Biden’s proposed tax increases on corporate income and capital gains, as part of $2.9tn in tax rises to pay for the US president’s expansion of the social safety net.
The draft tax plan — which was obtained by the Financial Times — was circulated on Sunday among members of the House Ways and Means committee, which is responsible for tax legislation in the lower chamber of Congress.
Under the plan, the US corporate tax rate would rise from its current 21 per cent to 26.5 per cent — short of the 28 per cent level proposed by Biden earlier this year.
House Democrats are also looking to raise the tax paid by investors on capital gains to 25 per cent from the current rate of 20 per cent — significantly lower than Biden’s planned rate of 39.6 per cent, his target for taxes on ordinary income for wealthy Americans.
However, House Democrats are proposing a 3 per cent surtax on earnings of more than $5m per year, which would target the very wealthiest American households. Biden had not backed such a surtax.
Despite the changes, the White House reacted enthusiastically to the plan.
“[It] makes significant progress towards ensuring our economy rewards work and not just wealth by cutting taxes for middle class families; reforming the tax code to prevent the offshoring of American jobs; and making sure the wealthiest Americans and big corporations pay their fair share,” said Andrew Bates, a White House spokesperson.
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The plan from House Democratic tax-writers emerged as lawmakers from Biden’s party are trying to find consensus on the details of the biggest and most ambitious piece of legislation in the president’s economic agenda — a $3.5tn programme of government investment in child care, education, healthcare and green energy.
If approved, the plan would eclipse both the $1.9tn fiscal stimulus enacted in March, and the $1.2tn bipartisan infrastructure bill that Biden is separately trying to get through Congress.
But there are deep divisions among Democrats over the package that will have to be resolved in the coming weeks, given the slim majorities held by his party in both houses of Congress. On Sunday, Joe Manchin, the Democratic senator from West Virginia and a moderate within the party, reiterated that the cost of the bill was too large for him to support.
“There’s not a rush to do that right now. We don’t have an urgency,” Manchin said, adding: “If I can’t go home and explain it, I can’t vote for it,” he said.
But in a sign of the rising concern over the fate of the legislation, Bernie Sanders, the progressive senator from Vermont, warned that it would be a “disaster” if no agreement was reached because Manchin was blocking a deal.
“[Manchin] has a right to get his views heard. He’s a member of the United States Senate from the great state of West Virginia. He has to sit down with all of us and we’ll work it out,” Sanders said.
In the draft text proposed by House Democrats, the corporate tax increase to 26.5 per cent would only apply to companies with income above $5m, in a sign that they want to shield smaller businesses from the higher levy.
For the smallest companies with income below $400,000, the corporate tax rate would be cut from 21 per cent to 18 per cent. House Democrats are also planning to fund the $3.5tn bill by reducing the cost of prescription drugs and by ramping up the enforcement of existing tax laws to combat evasion.