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Congress is busy working to significantly raise taxes on businesses, workers, and American families to fund the $3.5 trillion reconciliation bill. The specific tax increases it wants to impose are now taking shape and there is no shortage of bad ideas.
The House Ways and Means Committee’s portion of the reconciliation bill raises taxes on businesses by almost $1 trillion over 10 years. Starting at the top and considering the macroeconomic impacts of the bill, according to the Tax Foundation, the assorted tax increases would reduce economic growth 1 percent, wages 0.7 percent, and jobs by more than 300,000 over the long-run. This deep economic pain is enough reason for Congress to drop the massive reconciliation bill.
All the tax increases in the Ways and Means bill, or in discussion drafts released by the Senate Finance Chair that could potentially find their way into this legislation, will cause economic pain and are bad tax policy.
Let’s take a deeper dive on just a smattering of the poor policy ideas being pushed in Congress now:
- Things that impact those making under $400,000? They’ve got you covered – increasing the corporate rate so it’s the third highest in the world is a tax hike ultimately borne largely by workers and makes it harder for employers to hire and invest. A plastics tax? Guaranteed to harm American consumers, especially lower-income families who can least afford higher prices on essential products.
- But we are just getting started – after they hit workers and lower income consumers, the next obvious target is successful small businesses structured as passthrough entities. Both the Ways and Means draft and Senate Finance discussion drafts eviscerate 199A – the deduction for small businesses hurting family-owned enterprises in an economy still working to recover. And for good measure, the House was willing to throw in estate tax changes to ensure passing what one generation has worked so hard for to the next is more complicated.
- And fear not American companies working to compete globally – there’s some shared suffering for you too. Increased GILTI/minimum tax rates and more stringent rules before any other country has even moved on a global minimum tax? Check. Roll back of the FDII provisions that have helped American companies keep valuable IP in the United States or onshore it from overseas? Included. Adding a worldwide interest limitation that no one else uses that increases the cost of capital and forces American companies into overseas markets for financing? Yup.
- But wait! There is more!
- Higher capital gains rates to discourage longer term investment and harm economic growth and job creation? Check.
- A 98% tax hike on carried interest capital gains to reduce investment, cause job loss, decrease tax revenues, and cause a loss of retirement earnings. Included.
- Proposals for excise taxes on stock buybacks that force companies to inefficiently use money, undermine innovation and harm American families and seniors who are investors? Check.
- More restrictive partnership rules through changes to subchapter K of the Code that make little sense and would bring endless complexity and administrative burdens? lncluded. And don’t worry – there are increased and onerous financial reporting rules floating around as well.
- New proposals for the taxation of financial products that add complexity, uncertainty, and increase costs? Yup. We’ve got those too.
- Elimination of longstanding planning by corporations with respect to losses in subsidiary stock? Yes – they’ve even got these covered too.
Keep in mind, there are plenty of other provisions similar to these that will cause additional harm. There may be additional provisions added in subsequent bills, or others that businesses have not fully digested. We will add those troublingly policies to this evolving list as they develop.
The inclusion of the above policies, and others like them, is why the reconciliation bill is unfixable. To avoid the overall damage of the tax increases, and the specific damage each of these tax hikes would inflict, Congress needs to scrap the entire bill and start over with a much smaller bill that will not require these destructive tax increases.