President Joe Biden had promised to increase taxes on corporations and the wealthy. His early proposals hit a brick wall in Congress after Republicans and some Democrats opposed them. But a reversal by West Virginia Democratic Senator Joe Manchin, has given Biden’s agenda a new boost.
The new proposed bill includes a $430 billion in new spending on energy, electric vehicle tax credits and health insurance investments. According to Manchin, and Senate Majority Leader Chuck Schumer, the bill more than pays for itself by raising minimum taxes for big companies and enforcing new tax laws. The proposed bill would impose a 15% minimum tax on corporations with profits over $1 billion, raising $313 billion over a decade. Companies could claim net operating losses and tax credits against the 15%.
The U.S. corporate tax rate dropped from 35% to 21% after the 2017 tax Cuts and Jobs Act by then President Donald Trump, but according to the Institute on Taxation and Economic Policy, many companies pay much less than that, and some of the largest pay no federal taxes. Biden proposed raising the rate to 28% last year, but the tax component was struck from his infrastructure spending bill.
The newly proposed Manchin-Schumer bill also aims to close the so-called carried interest loophole. Carried interest refers to a longstanding Wall Street tax break that let many private equity and hedge fund financiers pay the lower capital gains tax rate on much of their income, 20%, instead of the higher income tax rate paid by wage earners, up to 37%. According to the Senators, eliminating the loophole would raise $14 billion.
Schumer expects the Senate to vote on the legislation during the first week in August.