Ranking Democratic Congressman Richard Neal says Democrats will seek to raise corporate and individual tax rates next year, according to Bloomberg News congressional reporter Erik Wasson. Democrats are likely to pick up seats in the Senate — they are currently leading in three Senate races where Republican Senators are retiring, giving Democrats the opportunity expand their majority in the Senate to 53 seats. On the other hand, Democrats may well lose their narrow control of the House of Representatives. If they keep control of the House and expand their control of the Senate, Democrats will be in a position to raise taxes a lot. Congressman Neal is the chairman of the powerful House Ways and Means Committee, which writes tax increase legislation.
How big a tax increase Democrats will seek is unclear. Right now, Democrats need every Democratic Senator to vote for a tax increase for it to become law, since the Senate is split 50-to-50 between the two parties, with Vice President Kamala Harris able to cast a tie-breaking vote in favor of most Democratic legislation only when Democrats are united in supporting it. Democrats have not been able to pass very large tax increases yet, because two of the 50 Democratic Senators — Joe Manchin and Kyrsten Sinema — are sometimes reluctant to vote for big tax hikes. But that will change if the Democrats expand their control of the Senate, and can thus pass big tax hikes even without support from Manchin or Sinema.
To date, tax increases under the Biden administration have been limited and mostly will go into effect in future years, such as the new taxes on drug manufacturers and energy companies (and new minimum corporate taxes and restrictions on individuals’ ability to deduct pass-through losses) contained in the $740 billion spending increase bill passed this month. But this is because Manchin and Sinema have been reluctant to vote for the larger tax increases backed by President Biden and leading Congressional Democrats.
The Tax Foundation says the taxes contained in the recently enacted $740 billion spending increase (it’s called the “Inflation Adjustment Act,” even though it won’t cut inflation) will shrink the size of the economy, as well as reduce wages, employment, and business investment, but only by relatively modest percentages. By contrast, economist Stephen Moore argues that legislation will eventually eliminate 900,000 jobs, shrink the economy by 1.2%, and shrink the average employee’s wages by $1,249.
The Build Back Better Act contains many other perverse incentives. It will stick large marriage penalties into the tax code. It will subject over a million prosperous married couples to higher tax rates than unmarried couples making the same income. “Marriage penalties in the proposed structure can total $130,200 annually in higher taxes” for some couples, says the Texas Public Policy Foundation.
It encourages out-of-wedlock births, by conditioning thousands of dollars worth of tax credits for low-income people on them not getting married. As CNBC explains, many low-income people could lose their earned-income tax credits if they marry: “a childless worker marrying someone with a kid may eliminate the benefit. It may also reduce what their spouse with a child would have received if they were single.” The Republican Study Committee notes that the bill “penalizes marriage: The bill would permanently double the [earned income tax credit]’s marriage penalty on childless worker benefits.”
It also discriminates against churches and religious communities. It specifically states that “eligible child care providers may not use funds for buildings or facilities that are used primarily for sectarian instruction or religious worship.”
Through a combination of discriminatory mandates and subsidies, the Build Back Better plan would wipe out thousands of jobs at religious daycare providers. It also contains disincentives to work, conditioning child-care subsidies on many parents working less and earning less money.
Combined with the tax increases in the Build Back Better Act (BBBA), which the budget assumes becomes law, President Biden would raise revenues by $4 trillion on a gross basis over the next decade. The Biden tax increases in the budget and BBBA would come at the cost of economic growth, harming investment incentives and productive capacity at precisely the wrong time.
The major tax proposals include:
- higher top rates for individual income, corporate income, and capital gains income;
- ending step-up in basis by making death a taxable event;
- expanding the base of the Net Investment Income Tax (NIIT) to apply to active pass-through income and making the active pass-through business loss limitation permanent;
- major changes to international taxation; and,
- a laundry list of new minimum taxes for individuals, businesses, and international corporations.
Another revenue raiser includes government-set pricing for certain prescription drugs, enforced by an excise tax of 1,900 percent on drug sales.
The tax increases in BBBA alone would reduce long-run GDP by 0.5 percent, and the tax increases in the budget, including a higher corporate tax rate of 28 percent (up from the current 21 percent) and international tax changes, would further discourage domestic investment and reduce the productive capacity of the United States. For example, raising the corporate tax rate to 28 percent would reduce long-run GDP by 0.7 percent and eliminate 138,000 jobs.
The magnitude of the tax and revenue increases on the table is unprecedented….Altogether, President Biden is proposing raising revenue by more than $4 trillion primarily from new taxes on U.S. businesses and individuals, exceeding the magnitude of his proposed tax hikes during the 2020 campaign ($3.7 trillion on a gross basis).