On September 13, 2021, the House Ways and Means Committee released several markups of proposed legislation which establish the committee’s proposals on changes in the taxation of corporations and individuals. The releases, in conjunction with a description provided by the Joint Committee on Taxation, provide the long-awaited official proposal by Democrats on how they intend to pay for the $3.5 trillion dollar Build Back Better Act.
Proposed Corporate Rate Changes
Among the highlights of the proposal is change in the income tax rate applicable to corporations, with a shift back towards graduated rates. Currently, a 21 percent flat rate applies to corporations, regardless of income amounts. Under the proposal, the rate would increase to 26.5 percent on corporate income in excess of $5,000,000. Income between $400,000 and $5,000,000 would retain a 21 percent tax rate, while income below $400,000 would be taxed at 18 percent. A three percent surcharge would apply to incomes in excess of $10,000,000, up to $287,000.
Proposed Individual Rate Changes
As long promised by Democratic lawmakers, as well as President Biden during his campaign, individuals would also see tax increases under the proposal, but only those making in excess of $400,000 a year. Under the proposal, the current 37 percent rate bracket would be increased to 39.6 percent (the top rate in effect prior to the Tax Cuts and Jobs Act), and would be expanded to begin at $400,000 (in the case of unmarried taxpayers). Currently, unmarried taxpayers are at least partially taxes at 35 percent for income over $400,000. The low point of the bracket is slightly increased for joint filers and heads of households.
Capital Gains Rate Changes
The capital gain rates, which currently set a top rate of 20 percent for taxpayers in the highest ordinary income tax brackets, would be changed to align with the new proposed ordinary income tax brackets. Additionally, the 20 percent rate is proposed to increase to 25 percent.
Additional Changes
The proposal includes several other changes applicable to businesses, including the limitation of business interest expense and taxation of foreign income, as well as some changes to IRS funding and IRAs. Notable, no changes to the deduction of state and local taxes are included.
Whether you agree or disagree with this proposed legislation, please let your voice be heard on Capital Hill.
To find your Senators/Representatives, please visit the following sites:
https://www.senate.gov/senators/index.htm
https://www.house.gov/representatives/find-your-representative
