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WASHINGTON — Top Democrats on Monday released legislation that would raise as much as $2.9 trillion to finance President Biden’s social safety net package through a series of tax changes, including increasing the amount that the wealthiest Americans and corporations pay in taxes.
The legislation, released by the House Ways and Means Committee, amounts to an opening offer as Democrats in both the House and Senate try to cobble together pieces of Mr. Biden’s $3.5 trillion economic package, which would fund climate provisions, paid family leave and public education.
The House bill proposes tax increases on wealthy corporations as well as individuals. But elements of the proposal are markedly different from what Mr. Biden initially proposed and what Senate Democrats have floated.
Moderate and conservative Democrats have balked at the $3.5 trillion price tag and certain proposed revenue provisions, even as their liberal counterparts warn that they have already compromised on the package’s scope.
Given that the Democrats plan to pass the bill along party lines, those differences will need to be worked out in the coming days. Party leaders have said they hope to reconcile the competing interests in the two chambers as much as possible before the legislation reaches the House floor.
Here is what the House Ways and Means Committee, led by Representative Richard E. Neal of Massachusetts, proposed, and how it compares with other proposals from the White House and the Senate.
The wealthiest would see their taxes go up.
House Democrats proposed raising the top tax rate on wealthy individuals to 39.6 percent from the current 37 percent. The new rate would kick in for married couples who have taxable income over $450,000 and single people who make more than $400,000.
The increase, which mirrors what Mr. Biden proposed in May, would take effect at the end of December and revert the top tax rate to what it was before Republicans passed their 2017 tax cuts. The House plan would also increase the top capital gains rate to 25 percent from 20 percent, a far smaller increase than the near doubling Mr. Biden has suggested.
The wealthiest — those with an adjusted gross income of than $5 million — would also face a new surtax of 3 percent under the House plan. While Mr. Biden has not proposed such a levy, Senate Democrats have suggested an even broader wealth tax than the House, proposing a one-time surtax on billionaires’ fortunes, followed by annual levies on the gains in value of billionaires’ assets.
The House plan is less aggressive than those of the White House and the Senate in other ways, including when it comes to taxing inheritances. Some top Senate Democrats want to tax inherited assets based on the gain in value from when those assets were initially acquired, rather than what they are worth at the time of death. Moderate Democrats have complained that would unfairly affect smaller family farms and businesses, and the House bill does not include such a plan.
Corporate taxes would rise.
Mr. Biden has suggested raising the corporate tax rate to 28 percent, a significant increase from its current level of 21 percent but still lower than the 35 percent rate that was in effect before the 2017 tax cuts. House Democrats instead proposed a graduated rate structure, with an increase to 26.5 percent for companies with taxable income of more than $5 million.
The tax rate would remain at 21 percent for companies with income of more than $400,000, and drop to 18 percent for the smallest businesses, those with income of less than $400,000. For vulnerable moderate Democrats facing political backlash for supporting tax increases, that decrease could be a crucial distinction for whom they want to target with those provisions.
Understand the Infrastructure Bill
- One trillion dollar package passed. The Senate passed a sweeping bipartisan infrastructure package on Aug. 10, capping weeks of intense negotiations and debate over the largest federal investment in the nation’s aging public works system in more than a decade.
- The final vote. The final tally in the Senate was 69 in favor to 30 against. The legislation, which still must pass the House, would touch nearly every facet of the American economy and fortify the nation’s response to the warming of the planet.
- Main areas of spending. Overall, the bipartisan plan focuses spending on transportation, utilities and pollution cleanup.
- Transportation. About $110 billion would go to roads, bridges and other transportation projects; $25 billion for airports; and $66 billion for railways, giving Amtrak the most funding it has received since it was founded in 1971.
- Utilities. Senators have also included $65 billion meant to connect hard-to-reach rural communities to high-speed internet and help sign up low-income city dwellers who cannot afford it, and $8 billion for Western water infrastructure.
- Pollution cleanup: Roughly $21 billion would go to cleaning up abandoned wells and mines, and Superfund sites.
The fate of the proposal is unclear in the Senate. Senator Joe Manchin III of West Virginia, a key moderate Democrat, on Sunday reiterated that he supported raising the corporate tax rate to 25 percent, and other Democrats have expressed concerns about hurting American businesses.
“The number would be what’s going to be competitive in our tax code,” Mr. Manchin said, speaking on CNN’s “State of the Union.” Other moderate Democrats have concerns about the increase for businesses.
Senate Democrats, led by Ron Wyden of Oregon, the chairman of the Finance Committee, have championed plans that would impose another set of taxes on big companies, including one on corporations that buy back their stocks to boost share prices.
A weakened international tax overhaul.
The Biden administration has led a global effort to crack down on profit shifting by companies that locate their headquarters in countries with low rates to reduce their tax bills. The measure unveiled by House Democrats on Monday waters down some of what the White House has been pushing for, including the rate that companies would pay on their overseas profits.
The legislation calls for a tax rate of 16.6 percent on corporate foreign earnings. That would be an increase from the current rate of about 10.5 percent, which Republicans enacted as part of their 2017 tax legislation, but less than the 21 percent that the Biden administration proposed. The tax would be calculated on a country-by-country basis.
The House proposal also offers more generous exclusions than what the White House envisioned. Companies could exclude 5 percent of their foreign tangible assets, such as property and equipment, from the minimum tax. While that is less than the current 10 percent, the Biden administration wanted to cut that benefit entirely.
Still, the House proposal would put the United States more closely in line with the rest of the world, which has been coalescing around an agreement that would set a global minimum tax rate of at least 15 percent. Critics have argued that a rate of 21 percent in the United States would put American companies at a competitive disadvantage.
The Committee for a Responsible Federal Budget, a fiscal watchdog, called the Ways and Means Committee international tax proposal “less aggressive” than what the White House proposed and projected it would raise about $360 billion in revenue compared with the $1 trillion that the White House plan would raise.
Biden’s 2022 Budget
The 2022 fiscal year for the federal government begins on October 1, and President Biden has revealed what he’d like to spend, starting then. But any spending requires approval from both chambers of Congress. Here’s what the plan includes:
- Ambitious total spending: President Biden would like the federal government to spend $6 trillion in the 2022 fiscal year, and for total spending to rise to $8.2 trillion by 2031. That would take the United States to its highest sustained levels of federal spending since World War II, while running deficits above $1.3 trillion through the next decade.
- Infrastructure plan: The budget outlines the president’s desired first year of investment in his American Jobs Plan, which seeks to fund improvements to roads, bridges, public transit and more with a total of $2.3 trillion over eight years.
- Families plan: The budget also addresses the other major spending proposal Biden has already rolled out, his American Families Plan, aimed at bolstering the United States’ social safety net by expanding access to education, reducing the cost of child care and supporting women in the work force.
- Mandatory programs: As usual, mandatory spending on programs like Social Security, Medicaid and Medicare make up a significant portion of the proposed budget. They are growing as America’s population ages.
- Discretionary spending: Funding for the individual budgets of the agencies and programs under the executive branch would reach around $1.5 trillion in 2022, a 16 percent increase from the previous budget.
- How Biden would pay for it: The president would largely fund his agenda by raising taxes on corporations and high earners, which would begin to shrink budget deficits in the 2030s. Administration officials have said tax increases would fully offset the jobs and families plans over the course of 15 years, which the budget request backs up. In the meantime, the budget deficit would remain above $1.3 trillion each year.
Tobacco and nicotine could face new taxes.
House Democrats included legislative language that would double the existing excise tax on cigarettes, small cigars and roll-your-own tobacco, as well as imposing taxes on any non-tobacco nicotine products, like e-cigarettes.
That proposal could run afoul of Mr. Biden’s pledge to not raise taxes on families making less than $400,000. In negotiations over the $1 trillion bipartisan infrastructure package, Mr. Biden and his main deputies refused to consider raising the gas tax to help pay for the plan, largely because such a tax would affect anyone who buys gas, regardless of income level. That same problem would accompany an increased tax on tobacco and nicotine as well.
A White House official, speaking on condition of anonymity, characterized the provision as a new idea from Capitol Hill and argued that because smoking is not a required cost, as gas or other household items are, it did not violate the pledge.
The SALT cap has yet to be addressed.
Democrats from high-tax cities and states have agitated for months to address a limit on how much taxpayers can deduct in state and local taxes, after the 2017 Republican tax changes imposed a cap of $10,000 for single filers and $20,000 for married couples filing jointly.
None of the tax proposals so far have formally addressed a partial or full repeal of that limit, although it has support in both chambers and Senator Bernie Sanders, the Vermont independent in charge of the Budget Committee, has signaled openness to a partial repeal of the cap.
And while it was left out of the legislation released on Monday, Mr. Neal and two Democratic advocates for the proposal, Representatives Bill Pascrell of New Jersey and Tom Suozzi of New York, issued a statement pledging that “we are committed to enacting a law that will include meaningful SALT relief that is so essential to our middle-class communities.”
Mr. Suozzi, who has stood behind a mantra of “No SALT, no deal,” issued his own statement expressing confidence that a change to the limit would ultimately be included in the package. Some liberal Democrats, however, have pushed back against its inclusion because of its cost and because it could counter some of their tax increases on the wealthy.
The I.R.S. would get more money but little new power.
House Democrats are prepared to spend billions of dollars to beef up the enforcement capacity of the Internal Revenue Service. The legislation adopts the Biden administration’s plan to spend $80 billion to invest in the agency, allowing it to hire more agents and to overhaul its creaky technology.
The plan would also bulk up the I.R.S. budget to engage in complex and expensive legal disputes with taxpayers who are not paying what they owe.
One big omission from the proposal, however, is the Biden administration’s plan to adopt a new information reporting system that would let the I.R.S. have greater visibility into the finances of taxpayers. Critics have called this an invasion of privacy.
But without that new system, the plan to narrow the so-called tax gap becomes much less bold. The Biden administration estimated that it could raise $700 billion in revenue by empowering the I.R.S., but by merely bolstering enforcement, the plan would raise about $200 billion over that time, the Congressional Budget Office said.