The fight in Washington over the president’s Build Back Better plan dragged on for months.
Sen. Joe Manchin’s refusal to support the Biden administration’s social and environmental spending plan also dooms the new taxes in the package. Those taxes would have hit the highest earners.
To fund the $1.75 trillion Build Back Better Act, the latest version of the legislation included surtaxes on high-income taxpayers and the income earned by trusts. A more extensive menu of new taxes would have hit big corporations, and indirectly affected their stockholders.
The plan’s initial version in September would have raised the top income-tax rate to nearly 40%, while boosting capital gains rates to 25%. Gift and estate taxes also would have increased. Partners in the private-equity and venture-capital industry would have seen restrictions to a valuable tax exemption. But all those changes were abandoned in the October version released by the House Rules Committee.
Still remaining in the proposal sent to the Senate was a 5% surtax on individual incomes above $10 million, or $5 million for married taxpayers filing separately. Another 3% surtax would have been added for income over $25 million, or $12.5 million for spouses filing separately. Deductions wouldn’t have reduced these surtaxes.
Similar surtaxes would have applied to income earned by trusts, but at much lower thresholds than the individual surtaxes. To dodge the trust surtaxes, trusts might have boosted distributions to their beneficiaries.
The Build Back plan also included some tax breaks that would have benefited middle-income earners, such as a lift to the ceiling on deductions for state and local taxes–to $80,000, from today’s $10,000 ceiling.
A minimum tax rate of 15% would have been imposed on corporations whose annual income averaged above $1 billion in the last three years. There are around 200 such companies, by most estimates. More controversially, an excise tax of 1% would have been imposed on stock buybacks by public companies.
If it’s hard to understand some of these tax ramifications, well …never mind about them.
One more thing you can stop worrying about. The Build Back Better Act included a $79 billion appropriation increase for the Internal Revenue Service, to strengthen its enforcement activities. The IRS won’t be hiring a lot of new auditors, after all.
Write to Bill Alpert at firstname.lastname@example.org