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Potential Tax Changes on the Horizon

Biden’s Belonged Bill

As the government looks to fund its $2 trillion social policy and climate change package, there have been many bumps in the road. Most recently there has been opposition to increase any top marginal rates on corporations, individuals and, capital gains, most notable by Kyrsten Sinema (D., AZ). In light of the opposition to these increases, the White House is looking for alternatives to fund the cost of this package.

Kyrsten Sinema’s Importance

Kyrsten Sinema and West Virginia Senator Joe Manchin are holding their ground to combat increases to the top marginal rates, why are their votes so important? The Senate is a 50-50 split between Democrats and Republicans, and with no Republican support expected, both Sinema and Manchin would need to back the measure for it to proceed. These two centrist Democrats have also opposed the original $3.5 trillion price tag, so changes must be made to the legislation to gain their support.

Potential Alternative Taxes

Ahead of alterations being made to the package, we are looking at the potential changes that may come to generate tax revenue lost leaving top marginal rates as they are.

Minimum Taxes
Instead of increasing rates on corporations, Democrats could instead look to re-install a corporate minimum tax. A minimum tax used to be included within the US tax code, however, it was eliminated in 2017 due to high compliance costs. Essentially this tax would set a minimum that companies must meet regardless of deductions and credits that would otherwise allow for smaller payments.
The United States Treasury Department estimates that this tax could raise over $148 billion over the course of a decade, however, there are also some downsides to it. If companies are barred from receiving tax credits past a certain point, they may elect to not collect some tax breaks that are aimed towards social policy. These breaks could include renewable energy and domestic manufacturing credits thus reducing the intended effect of the policy.

Stock Buyback Tax

A new tax that could potentially be implemented is a stock buyback tax. This would deploy a levy when companies buy back their shares and when issuing dividends to stockholders. A plan brought to the public by Ron Wyden and Sherrod Brown, would apply a 2% excise tax on those purchases.

Other Potential Taxes
Some other taxes with the potential to be implemented include a tax on executive compensations, heavier taxing on foreign profits, and even potentially restricting some of the current tax breaks currently offered.
We are still unsure what levies could be put into place or even restricted to make up for the deficit in the budget, however, these potential options shed some light on things to come in the future. There are going to be a lot of implications to come from the edits which we will be tracking closely.

Thoughts or questions on these potential new taxes? Give us a call at 516-541-6549 and keep up with our newsletter to stay up to date on tax news and updates.

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