House Democrats release bill raising corporate tax to 26.5 percent
The House Ways and Means Committee on Monday released legislation aimed at paying for Democrats’ $3.5 trillion in social spending priorities, including by raising the corporate tax rate to 26.5 percent.
The legislation includes a host of tax increases focused on high-income individuals and corporations. It would increase the top capital gains rate from 20 percent to 25 percent, raise the top individual tax rate from 37 percent to 39.6 percent and impose a 3 percent surtax on individuals’ income above $5 million.
The legislative text is part of a wide-ranging bill that includes spending and tax cuts in areas such as child care, health care and renewable energy. The Ways and Means Committee started considering its portion of the bill last week and is scheduled to continue its markup on Tuesday and Wednesday.
“Our proposals allow us to both address our perilously changing climate and create new, good jobs, all while strengthening the economy and reinvigorating local communities,” Ways and Means Committee Chairman Richard Neal (D-Mass.) said in a statement. “We seek to help families better afford essentials with the continuation of the expanded Child Tax Credit and investments that will lower the cost of prescriptions and health insurance premiums. And we can do all this while responsibly funding our plans.”
In crafting the tax legislation, House Democrats have had to balance varying priorities of lawmakers in the caucus, since Democrats only narrowly control the House. While Democrats broadly support raising taxes on wealthy individuals and corporations, some moderate Democrats had raised concerns about some of the tax-increase proposals that President Biden had released earlier this year.
Any final piece of legislation will have to be agreed to by both House and Senate Democrats and the White House. Key Senate Democrats have released tax proposals that have some differences with the Ways and Means Committees’ legislation.
House Democrats’ proposed top corporate tax rate of 26.5 percent is higher than the 25 percent rate desired by moderate Democratic Sen. Joe Manchin (D-W.Va.) but below the 28 percent rate Biden had floated.
Democrats are proposing to replace the current flat corporate rate of 21 percent with a graduated corporate rate structure. The first $400,000 in corporate income would be taxed at 18 percent, income between $400,000 and $5 million would be taxed at 21 percent, and income above $5 million would be taxed at 26.5 percent.
On capital gains, House Democrats’ proposed rate increase to 25 percent is a substantially smaller rate hike than Biden’s proposal to tax capital gains at the same rates as ordinary income. The Ways and Means Committee’s bill also does not propose to tax capital gains at death, an idea that is supported by Biden and some Democratic lawmakers but has drawn criticism from Democrats representing rural areas. However, the committee does propose changes to the estate tax.
The Ways and Means Committee’s proposal also includes international tax changes, increased tobacco taxes, limits on a deduction for noncorporate business income for high-income households, and changes to rules for Individual Retirement Accounts for high-income households.
Additionally, it would provide the IRS with nearly $80 billion in order for the agency to bolster tax enforcement activities and update its information technology.
The bill does not address the $10,000 cap on the state and local tax deduction created by the 2017 GOP tax law. Many lawmakers from high-tax states such as New York, New Jersey and California want to repeal the cap, but some progressive have expressed resistance.
Neal and Ways and Means Committee members Bill Pascrell (D-N.J.) and Thomas Suozzi (D-N.Y.) said in a joint statement Monday that they are still working with colleagues to undo the SALT deduction cap.
“We are committed to enacting a law that will include meaningful SALT relief that is so essential to our middle-class communities, and we are working daily toward that goal,” the lawmakers said.
Updated at 12:03 p.m.