The framework for the nearly $2 trillion social and climate spending bill released by the White House makes it very clear that more than half of the finance would be available from the tax reforms covering wealthy citizens of the US says, William D King. Funds would be made available by imposing a tax surcharge on the high-income group earning higher than $10 million per annum, levying higher taxes on high-income business owners, and strengthening tax enforcement by IRS. The proposals targeting wealthy individuals will contribute about $1 trillion of almost $2 trillion revenue target under the Build Back Better Act.
A significant chunk to come from personal finance confirms William D King
During his speech, President Biden made it clear that his intention is not to punish the high earners but to make them pay their fair share. To support his claim that the new tax proposals were meant only to mop up funds from the high-income group, Biden confirmed that households with annual income not exceeding $400,000 need not pay a single penny extra for taxes. Instead, they would get a tax cut in the form of enhanced child tax credit and reduced costs o health care and child care.
Without diluting the policy goal of targeting the wealthy. The new framework does away with several tax proposals issued by the House Ways and Means Committee last month. A case in point is the unchanged top rate of income tax that remains steady at 37% says, William D King. The same happens with the maximum rate of income tax of 20% on investment income. The only exception is the multimillionaires who come under the ambit of the proposed surtax.
Moreover, there is no imposition of new required distributions from big retirement accounts. Or no alteration of rules around trusts and estate taxes.
Millionaire and billionaire surtax
According to the White House, the top 0.02% of Americans will not have to pay a new surcharge. In the form of a 5% surtax on modified gross adjusted income exceeding $10 million. And an additional surcharge of 3% when the income exceeds $25 million. According to estimates, the surtax will generate an additional $230 billion. Over 10 years from 1st January 2022, when the changes come into effect.
Effectively, the impact of 8% surtax on the highest earners will translate into a 45% federal marginal income tax rate. From the earlier level of 37% on wages and business income. On dividends and long-term capital gains, they need to pay a top 28% of the federal rate together. With the existing 3.8% net investment income tax payable by high earners. The current rate of taxes on long-term capital gain is 20%.
The tax proposals tabled by the Democrats should help IRS. To narrow the tax gap resulting from the $79 billion in new funding. The top 1% of taxpayers evade taxes totaling about $160 billion in a year explains William D King. The IRS would hire trained enforcement agents to pursue wealthy taxpayers. And invest in new technology and taxpayer services to help ordinary Americans.
The IRS hopes to raise $400 billion in 10 years, making it the single biggest source of revenue.