Here are some major features of proposals now being circulated, which is all subject to change:
- The top income tax rate would rise from 37 to 39.6 percent for various categories of earners who make $400,000 to $500,000 a year and more.
- President Biden wanted to raise the corporate tax rate from 21 back to 28 percent, only part of the way back to where it was before the 2017 Republican tax cut. But the current bill won’t go that far; instead, it would raise the rate to 26.5 percent, but only for larger companies with more than $5 million in annual income (smaller companies would see their tax rate stay the same or decline).
- The top tax rate on capital gains would rise from 20 to 25 percent — still a lower rate than wage income, continuing the preferential treatment lavished on wealthy investors.
- Those who make more than $5 million a year would face a new 3 percent surtax.
- The Internal Revenue Service would be given new funds to go after the hundreds of billions of dollars in taxes that go unpaid every year.
- The biggest single revenue raiser comes from the bill’s provision to allow Medicare to negotiate drug prices. Medicare is now prohibited from negotiating, and Americans pay the highest prices for medication in the world; Democrats say we can save $700 billion from this change alone.
The idea that these reforms are radical is leading even some Democrats to push them to the right. For instance, House Democrats have drafted a version of the tax proposals that appears to omit a provision sought by Biden to close a loophole allowing the wealthy to pass large estates down to heirs with much of it escaping taxation permanently.
As HuffPost reports, this appears “designed to be more acceptable to conservative Democrats wary of being accused of hurting farms.”
Democrats who are afraid of this are letting an old Republican lie — that estate taxes targeting multi-million-dollar fortunes hurt family farms — get repurposed and applied to so-called “stepped up basis.”
This involves assets that are held and not taxed throughout a wealthy person’s life (they are only taxed at the point of sale, based on how much value they gained) and are then passed to an heir. The appreciation of their value is calculated for future tax purposes only by measuring that appreciation from that point of transfer onward, effectively canceling the gains that occurred up to that point, meaning they are never taxed.
Democrats appear to fear the talking point that such taxes would devastate the owners and operators of farms passed down from one generation to the next.
But, according to a senior Senate Democratic aide, the current negotiations had already carved out an exemption for family-owned farms that would only tax gains valued from $25 million and up. It’s hard to see how that exemption would permit for the existence of any actual sob stories about family farms.
If this provision does die, untold gobs of wealth could escape taxation permanently. Yet this flows directly from the idea that there’s something somehow radical about Biden’s tax plans.
Indeed, when you get beyond the scary sound of “trillions of dollars in new taxes,” it isn’t actually all that much.
That’s because the package would raise and spend $3.5 trillion over 10 years, or $350 billion a year. That’s less than 2 percent of our current gross domestic product (which was about $21 trillion last year). Which makes this all a substantial increase in taxes and spending, but not something that will utterly transform the American economy.
That’s on the macro level. Looking at individuals, you have to ask: Who will have their lives upended by these measures? Billionaire investors? Wealthy tax cheats? Corporations that might find it a little harder to move money around to foreign subsidiaries?
Trust us, they’ll be fine.
But they aren’t acting like it. The bill is the subject of furious lobbying from business groups that know if you spend a few million dollars influencing Congress, you can reap billions in benefits.
Yet many changes Democrats want to make are simply reversing provisions of the Republicans’ 2017 tax cut (and in some cases only partially). Paying taxes something like five years ago can’t be that radical a change.
The bigger picture is that the 2017 tax cut was the capstone of a period of relentless tax-cutting for the wealthy and corporations dating back to the 1980s. In 1980, the top marginal income tax rate was 70 percent, about twice what it is now, and if anything, the rich spent less time whining about how oppressed they were by taxes than they do today.
That period of tax-cutting was a real revolution; what Democrats are attempting now is little more than a modest recalibration. But even that is too much for some people to take.