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HOW MUCH MONEY YOU GOT? Remember how Republicans built themselves a $1.5 trillion deficit cushion when writing the Tax Cuts and Jobs Act in 2017.
Well, never say never — and Democrats haven’t totally closed the door on that idea in their current budget resolution.
But party leaders and key centrists are proceeding as if they will offset all of the new spending and tax cuts they want in a reconciliation measure, one way or another. (For instance, Senate Majority Leader Chuck Schumer said last week that would be a key way to battle inflation.)
So long story short: Democrats would then need to raise a healthy amount in taxes if they’re going to be distributing $3.5 trillion in goodies.
How much exactly is still not clear. But it’s probably a good couple trillion, even if Democrats also lean on dynamic scoring and health care savings.
MORE ON THAT IN A BIT, but welcome to the “this is it for August recess?” version of Weekly Tax. Speaking of August hijinks: Who among us hasn’t wanted to just drive on the commuter train tracks?
Science, huh: Today marks 32 years since a very intense solar flare essentially messed with the technology at the Toronto Stock Exchange, putting a stop to trading for three hours.
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HOW ABOUT SOME ACTUAL NUMBERS: Next question then: How much low- to medium-hanging fruit is there for Democrats when they’re looking to raise money from the rich and corporations? And the short answer is: Probably somewhere around $1 trillion, or maybe even a little more.
There are likely still some twists and turns before any reconciliation package comes together. But people paid to pay attention say they’re at least penciling in some tax hikes. Bringing the top individual tax rate back to 39.6 percent, from the 37 percent the GOP lowered it to in 2017, seems quite doable.
Democrats are expected to find at least some new revenues from increased IRS enforcement, after a broader effort there fell out of the bipartisan infrastructure measure.
And then there’s a series of areas where Democrats are expected to find some success, but probably fall short of President Joe Biden’s ambitions.
So perhaps a 25 percent corporate rate (not 28), a 28 percent capital gains rate (not 39.6 or 43.4, depending on how you’re counting) and some changes to the international tax system for businesses.
Putting some more meat on that: Ben Koltun, the director of research for Beacon Policy Advisors, helped Weekly Tax put some more specific numbers around those projections.
Koltun figured that the increases in corporate, individual income and capital gains rates would raise around $668 billion over a decade. (A pretty healthy majority of that would come from the corporate hike, it should be noted.)
If you’re feeling generous, you could give Democrats about half of what they’re expecting from international changes — that’d be about a half-trillion dollars — and enhancing reporting requirements for banks to the IRS, which would add another $230 billion or so.
All together, that’s around $1.4 trillion — though you’ll certainly find people who think those projections on international and the IRS enforcement are ambitious, which could easily knock that overall total down to $1 trillion.
That’s also not to say there aren’t other paths for Democrats to raise revenues, including through limiting tax breaks or other avenues for tax savings. (Some ideas out there: The preferential treatment of carried interest, making it harder to escape either Obamacare’s net investment income tax or the Self-Employment Contributions Act tax, and extending the current limits on excess business losses.)
Plus, there’s also other tried-and-true methods for gaming the reconciliation process. Obamacare’s Cadillac tax never went into effect for a reason, and there’s bipartisan interest in making the same thing happen for the Tax Cuts and Jobs Act’s limits on expensing research activities.
Other reconciliation-based odds and ends: Nine centrist House Democrats are vowing to vote down the Democrats’ budget resolution if the chamber doesn’t first vote on the bipartisan infrastructure bill, as our Heather Caygle and Sarah Ferris reported on Friday.
Speaker Nancy Pelosi floated the idea on Sunday of the House Rules Committee looking for a way to link the advancement of both the budget and the infrastructure bill, but the moderates didn’t sound interested.
Monthly child allowance: Democrats will be pushing to extend their expansion of the Child Tax Credit in the reconciliation measure. With that in mind, the Joint Economic Committee and Chair Don Beyer (D-Va.) have released new research finding that the new payments are putting more than $19 billion into local economies a month.
SEMI-RELATED NOTE: The U.S. is looking to help lock down a global tax agreement at the same time that Democrats are seeking domestic tax changes.
The Alliance for Competitive Taxation, a group of close to four dozen big multinational corporations, has accepted the invitation from the Treasury Department to comment on the path forward for the process being run through the Organization for Economic Cooperation and Development.
Among the group’s requests, as negotiators try to clinch a pact that would include global minimum taxes and changes to how and where corporate profits are taxed:
That the U.S. more eagerly insist that other countries repeal their unilateral digital services taxes as part of any deal, and that those levies be prohibited for the future.
And related to the reconciliation debate: The group also doesn’t want Congress to make changes to the existing levy on global intangible low-taxed income until America’s trading partners and competitors put their own minimum tax regimes into place.
Around the World
TALK ABOUT GOING AFTER THAT RING: New Zealand and Lord of the Rings are in the midst of a break-up — and as The Financial Times reports, taxes are playing at least a supporting role in the drama. Amazon Studios is moving its production of a series based on the J.R.R. Tolkien books to the U.K., some two decades after the original films began filming in New Zealand. In response, the New Zealand government said it was taking back some tax breaks that it had offered the production, though Amazon still has access to a longstanding 20 percent rebate. In any event, it all adds up to a pretty big blow to New Zealand, which has built a pretty extensive tourist infrastructure surrounding Lord of the Rings — and already given out hundreds of millions of dollars in tax breaks to related film productions. Great Britain offers generous film tax incentives of its own, but says it didn’t offer any special deals to Lord of the Rings.
Related note: There are no shortage of skeptics about the effectiveness of tax breaks for film productions.
Around the Nation
FILL THE GAP: Businesses in New Jersey are expected to have to pay a quarter-billion dollars in payroll taxes to help refill an unemployment insurance trust fund, NJ.com reports. The state’s labor department warned companies on Friday about the looming change, and business advocates expect the new rates to go into effect in October. New Jersey’s unemployment trust fund has been taxed by pandemic-related claims, having paid out close to $8 billion since March 2020. It could’ve been worse for employers: The trust fund got to such a low point that businesses could have owed an extra $1 billion in payroll taxes, but Gov. Phil Murphy signed a law earlier this year that phases the tax increases in over three years.
Quick Links
Not that good of a workout: “Peloton Overcharged Members With False ‘Sales Tax,’ Suit Claims.”
Washington Examiner: “Silence from congressional liberals as Democrats move toward SALT tax cut for wealthy.”
Vox: “The IRS has a big opportunity to fix the way Americans file taxes.”
Did You Know?
The energy from a solar flare is equal to "millions of 100-megaton hydrogen bombs exploding at the same time," according to NASA.
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