Dems planning a $3 trillion tax hike on working families, small businesses

Democrats are proposing an almost $3 trillion increase in taxes on small businesses and working families. This is the largest tax increase since 1968 in terms of the size of the economy, and the largest tax increase ever in nominal dollars.

The total slate of proposed tax increases is still in its preliminary estimate; however, the sum includes savings achieved as a result of greater enforcement of existing tax laws and additional policy reforms.

Taxes on working individuals and families

First on the tax increase inclusion is raising taxes on working families. This will increase the federal corporate income tax rate from 21 percent to 26.5 percent. This will give the U.S. a combined state-federal rate of 30.9 percent, higher than foreign competitors, including China, which has a 25 percent corporate tax rate, and Europe, with an average 21.7 percent tax rate.

According to Stephen Entin of the Tax Foundation, workers bear an estimated 70 percent of the corporate income tax in the form of wages. Similarly, a 2020 study by the National Bureau of Economic Research found that 31 percent of corporate tax rates fall on consumers.

The corporate tax increase will be a threat to the life savings of families as it will reduce the value of publicly traded stocks in brokerage accounts or in 401(k)s. It will also significantly impact working families as they struggle with higher prices, fewer job opportunities, and lower wages. With consumer prices rising every month due to inflation, it already disproportionately hurt poor families who are already struggling to begin with.

Individual investors opened 10 million new brokerage accounts in 2020. At least 53 percent of households own stock. Finally, 80 million to 100 million individuals have 401(k) and 46.4 million households have individual retirement accounts.

Raising the corporate income tax rate will also hit families with higher utility bills as the country is still bearing the brunt of the pandemic. Customers will directly bear the cost of corporate income taxes that will be imposed on utility companies. Investor-owned utility companies will also need to get their billing rates approved by state utility commissions. (Related: Democrats promise to RAISE taxes if they are elected this November.)

Taxes on small businesses

The top income tax rate will be increased to 39.6 percent. This will limit the 20 percent small business deduction, expand the Obamacare net investment income tax, and limit the ability of pass-throughs to deduct excess business losses.

This move will likely increase taxes on several million small and family-owned businesses across the country. The Biden administration admitted that raising the top income tax rate could raise the taxes on at least one million small businesses, not including other tax increases.

The Chamber of Commerce found that there are 1.4 million small businesses organized as C-corporations, and almost 900,000 small businesses could be hit with the limitations of passthrough deductions based on 2018 IRS SOI data.

Other raised taxes

Other taxes to be raised include the following.

• Capital gains tax rate. This will be increased to 28.8 percent. The holding period for carried interest capital gains will also be increased to five years. In comparison, China’s capital gains tax is 20 percent.
• Global minimum tax. The Biden administration has been pushing a global agreement that locks in high taxes and a 15 percent global minimum tax in order to make citizens share the burden of financing the government. Thus the administration is pushing for a 16.5 percent global minimum tax.
• Death tax. By cutting the exemption level in half and modifying valuation rules, the death tax will raise taxes on family-owned businesses and farms across the country.
• Conservation easement deduction. This will be applied retroactively, so it would impact taxpayers in the tax years beginning 2016. This is a controversial move as many believe that if lawmakers want to make changes to the conservation easement deduction, they should do so as part of the net tax cut, and not do so retroactively.
• Medicine excise tax. A new excise tax on medicines and healthcare policies will be implemented. This 95 percent excise tax on manufacturers imposes an international reference pricing scheme that directly imports foreign price controls into the U.S., and will reduce access to new, lifesaving and life-preserving medicines.

The developments regarding the increase in taxes will seemingly show a significant political stalemate as Democrats continue to craft proposals that could overhaul federal health care, education, immigration, and other tax laws. However, House Speaker Nancy Pelosi aims to have the full proposal written by September 15.

Read more at NationalDebt.news.

Sources include:

ATR.org

GOP-WaysAndMeans.House.Gov