Dems Propose $3 Trillion Tax Hike on Working Families and Small Businesses

Washington, D.C. – While remaining secretive about many of the essential details, Democrats in the U.S. House of Representatives appeared Monday to move ahead with internal negotiations intended to produce, in nominal dollars, the largest tax increase in U.S. history.

If enacted, the funds raised would be used to “pay for” part of the $3 trillion in new spending progressive Democrats have been demanding since the election of Joe Biden as president just nine months ago. The plan, which is being moved through Congress through the budget reconciliation process to avoid it being blocked by a potential filibuster in the U.S. Senate is, according to some analysts, the largest expansion of the federal government since Lyndon Johnson pushed his “Great Society” through.

The details of the plan are still sketchy despite the tax bill’s markup being scheduled to begin in just two days so that an artificial timeline established by House Speaker Nancy Pelosi, D-Calif., can be met. The lack of information is deliberate, House Ways and Means Committee Chairman Richie Neal, D-Mass., told the New York Times, to keep the opposition to the alleged revenue raisers to have time to mobilize.

Neal explained his thinking to the paper, The New York Sun reported Monday, “by comparing his behavior to a man trying to seduce a woman into marriage, postponing full disclosure until the wedding guests are seated, and the bride has been walked down the aisle.”

“I’m likely to hold off on the pay-fors until we are at the altar,” the tax-writing committee chairman told the Times.

An analysis of the proposals being floated conducted by Americans for Tax Reform, a non-partisan organization that opposes tax increases, found that many would violate President Joe Biden’s 2020 campaign promise that taxes paid by those earning less than $400,000 per year would not go up “by one thin dime”

The Biden-endorsed plan to increase the federal corporate income tax from the current 21 percent to a higher rate – 26.5 percent according to the latest drafts – would see the tax hike passed down at least in part of working families “in the form of higher prices, fewer jobs, and lower wages.” A 2020 study by the National Bureau of Economic Research which found that 31 percent of the corporate tax fell on consumers would seem to confirm that analysis.

The 26.5 percent number would also produce, the taxpayer groups said, a combined U.S. state-federal rate of 30.9 percent which would be “higher than our foreign competitors including China, which has a 25 percent corporate tax rate, and Europe which has an average rate of 21.7 percent.”

Other potential tax hikes identified in the drafts as being under consideration would increase the top rate on the personal income tax to 39.6 percent – which would hurt hundreds of thousands of U.S. small businesses or more — limiting the 20 percent small business deduction, expanding the Obamacare net investment income tax, and limiting the ability of pass-throughs to deduct excess business losses.

These measures, ATR said, would likely increase taxes on several million small businesses across the country, something the Biden Administration confirmed earlier in the year. A study by the U.S. Chamber of Commerce also cited by the group found 1.4 million small businesses organized as C-corporations, while “almost 900,000 small businesses could be hit with the limitation of the passthrough deduction based on 2018 IRS SOI data.”

Other proposals considered to be unpopular that are included in the document drafts would increase the capital gains to 28.8 percent while increasing the holding period for carried interest capital gains to five years, a 16.5 percent global minimum corporate tax, and hiking the effective death tax by cutting the current exemption in half and modifying the evaluation rules. The latter move would not only increase the amount of tax owed but would make them due immediately upon the transfer of family assets like a business or farm from one generation to another upon the death of the owner.

Democrats are still trying to increase funding for the U.S. Internal Revenue Service so that it can hire more agents to conduct more audits. The Biden Administration estimates this would produce an additional $800 billion in revenue over ten years. It’s highly likely, however, that the estimates will fall significantly short of what is projected due to apparent confusion between “tax avoidance,” which is legal, and tax evasion, which is not. Nonetheless, it will lead to more taxpayers being harassed by the IRS in the coming years through audits – which is something of an irony since the agency itself apparently has never had to undergo one.

Speaker Pelosi wants the House to be finished with its work on the reconciliation package, much of which has already passed the Senate once, by Sept. 27. She’s expecting to have all the hard work done before the current fiscal year runs out at midnight on Sept. 30. Given the opposition to several Senate Democrats to the $3 trillion figure, as well as the unease of moderates within Pelosi’s own conference who are concerned the plan contains too much spending and borrowing and the progressives who worry it isn’t enough, her timetable is considered by many to be ambitious. Nevertheless, in what is likely her final term as speaker, Pelosi would consider getting the measure passed and made law to be her crowning legislative achievement. Others, though, are prepared to work just as hard as she to stop her.

Peter Roff can be reached at RoffColumns AT GMAIL.com. Follow him on Twitter @PeterRoff.

The opinions expressed by columnists are their own and do not necessarily represent the views of AmericanActionNews.com

Peter Roff

Peter Roff is affiliated with several Washington, D.C. public policy organizations and is a former U.S. News and World Report contributing editor who appears regularly as a commentator on the One America News network. He can be reached by email at [email protected]. Follow him on Twitter @PeterRoff.