President Joe Biden announced Thursday that Democrats have come to an agreement on the $1.75 trillion spending package, including a wealth tax and a minimum corporate tax.
After seemingly endless rounds of negotiations, Biden said he was “confident” that the framework Democrats have landed on is an agreement for the upcoming spending package that can pass both houses of Congress.
“It is fully paid for and will reduce the deficit by making sure that large, profitable corporations can’t zero out their tax bills, no longer rewarding corporations that shift jobs and profits overseas, asking more from millionaires and billionaires, and stopping rich Americans from cheating on their tax bills,” Biden said in a statement Thursday. He added that no one earning less than $400,000 per year will “pay a penny more in taxes.”
Here’s how the taxes proposed in Thursday’s framework break down.
Taxes on the wealthy
President Biden announced the budget reconciliation plan would be funded, in part, by enacting a “new surtax on the income of multimillionaires and billionaires.”
The spending package would assess a 5% surtax on adjusted gross income for those earning more than $10 million and an additional 3% for those with incomes over $25 million. It applies to the wealthiest 0.02% of Americans and would bring in $230 billion in revenue, according to the White House. The new taxes would essentially raise the top tax rates to at least 45% on ordinary income, according to the Wall Street Journal.
Additionally, the framework would close the loopholes that allow some to avoid paying the 3.8% Medicare tax on their earnings. The White House estimates this will bring in $250 billion in offsets.
Not included in Thursday’s framework is the so-called billionaires income tax. Drafted by Senate Finance Committee chair Ron Wyden (D-Ore.), the provision would have taxed the ultrawealthy on their tradable assets, including stocks and bonds, each year. It would have affected about 700 of America’s richest individuals, such as Elon Musk and Jeff Bezos.
“I don’t want to punish anyone’s success. I’m a capitalist. I want everyone to be able to, if they want to, be a millionaire or a billionaire, to be able to seek their goal. All I’m asking is pay your fair share,” Biden said Thursday.
Thursday’s Build Back Better framework would require large companies to pay a 15% corporate minimum tax. Businesses would also be subject to a 1% surcharge on corporate stock buybacks.
Small businesses and those making less than $400,000 would not face the new taxes, according to the White House.
Under the plan released Tuesday by senators Elizabeth Warren (D-Mass.), Angus King (I-Maine), and Wyden, the corporate minimum tax would apply only to companies that publicly report more than $1 billion in annual profits for at least three years. The tax, which would apply to approximately 200 companies, would generate “hundreds of billions in revenue over 10 years,” according to the senators’ statement. The White House on Thursday estimated the corporate minimum tax would bring in $325 billion and the stock buyback tax would amount to $125 billion.
Additionally, Thursday’s framework would enact a 15% country-by-country minimum tax on foreign profits of U.S. corporations. Under these provisions, companies will “no longer receive massive tax benefits from shifting profits and jobs abroad,” the White House said.
But while Biden vowed the spending framework is fully paid for, the Committee for a Responsible Federal Budget says it still relies heavily on “gimmicks,” saying that expansions of the Child Tax Credit and the Affordable Care Act and the six-year funding for universal pre-K currently have arbitrary sunsets. If these programs are extended in any way, they’ll end up costing up to $2 trillion over the decade.
But the committee noted the package wasn’t all bad news. “We are pleased to see that this framework does not include SALT cap repeal, which would increase costs by $90 billion a year and potentially result in a net tax cut for the highest earners, and that it does not rely on rosy promises of economic growth to pay for its initiatives. Neither of these belong in any final package, and we hope they stay out while lawmakers further prioritize permanent and targeted policies,” president Maya MacGuineas said.
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