What are the tax hikes in the social policy and climate change bill Democrats are trying to push through by the end of the year? It depends what day it is. The latest version, a revised $ 1.75 trillion Build Back Better framework released today by the White House, is a lite version of the previous $ 3.5 trillion plan. It’s not just a question of what’s inside but what’s outside. Here are the links to the Memo from the White House and the Legislative text of October 28.
On the expenditure side, this is a huge program. There is still a free preschool for all, subsidized daycare and home care, clean energy incentives including a $ 12,500 tax credit if you buy certain electric cars, even coverage for hearing aids as part of health insurance. The enhanced child tax credit is extended for one year; and the repayment, that is, you get the credit even though you don’t owe taxes, is made permanent. What is missing ? Paid family leave and free community college.
How will it be paid for? The White House executive continues to seek revenue to pay for the plan through a combination of corporate tax changes and taxing the wealthy. The three main tax changes for individuals are:
A new income surcharge. A new surtax on the incomes of multimillionaires and billionaires would apply to the richest 0.02% of Americans. It would apply a 5% rate on top of income of $ 10 million, with an additional 3% surtax on income over $ 25 million. This is expected to bring in $ 230 billion over 10 years.
A tax crackdown on health insurance. The plan would close loopholes that allow high-income business owners to avoid paying the 3.8% Medicare tax on their income. This is expected to bring in $ 250 billion over 10 years.
Limits on business losses for the rich. This provision would permanently prohibit business losses in excess of business income for unincorporated taxpayers and subject excess business losses for one year to the limitation for the following year. This is expected to bring in $ 170 billion over 10 years.
What was taken out on the income side?
The mandate of the Small Employer Pension Plan. A pension plan mandate that would require employers with six or more workers in business for at least two years to automatically enroll their employees in individual pension plans or 401 (k) type plans appears to have been dropped. This would have raised funds because employers who were not in compliance would have had to pay tax penalties.
New retirement account contribution limits and new retirement account withdrawal mandates for people with disproportionate retirement savings have also been dropped. The first provision, which would have applied to married couples with taxable income greater than $ 450,000 or greater than $ 400,000 for singles, prohibited re-contributions to the retirement account for taxpayers whose total retirement account balance exceeded $ 10 million in the previous tax year. These same people should have made a special minimum withdrawal (50% of the amount greater than $ 10 million) from their retirement account in the year following any year in which the balance exceeded $ 10 million. There were more complicated rules for those with accounts over $ 20 million.
The provisions that would have eliminated backdoor Roth IRAs and mega-Roth IRAs are also gone for now.
Another payment, forcing banks and other financial institutions to report account balance information to the Internal Revenue Service to uncover tax fraud, was also dropped. The Credit Union National Association said today that removing the IRS’s reporting provision from the reconciliation package was a “major victory.”
On the inheritance tax front, the previous House bill included provisions that would halve the amount of the inheritance tax exemption, eliminate the use of grantor trusts, and change the inheritance tax exemption amount. valuation discounts, all to limit tax-free wealth transfers. âThe inheritance tax, FREEs and appraisal provisions should be deeply entrenched at all times,â said Palmer Schoening, chairman of the Family Business Coalition, a group that supports the repeal of inheritance tax .
Don’t rely on this latest version; it is still a work in progress. âTaxpayers have already shown their willingness to resuscitate abandoned payments, so we are not lowering our guard,â Schoening said.
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