TAX TAKE: Stayin' Alive: Can Raising Tax Rates Make a Comeback This Year?
Democrats considered raising tax rates on wealthier individuals and businesses as part of their Build Back Better agenda, although those efforts were ultimately dropped in the House-passed bill in light of objections from Senator Kyrsten Sinema (D-AZ). Nevertheless, Senator Joe Manchin (D-WV) has recently been calling for reconsideration of raising tax rates. Specifically, he proposes to increase the corporate rate to 25 percent, the ordinary income rate to 39.6 percent, and the capital gains rate to 28 percent – breathing new life into these proposals.
Manchin's proposals come as Congress and the Biden Administration are considering measures to tackle inflation and the national debt. Manchin is a crucial Democratic vote in the Senate and for President Biden to have success passing any scaled-back version of his Build Back Better agenda this year, Manchin will play a key role shaping that legislation.
It is important to note that Manchin has proposed raising taxes in the recent past. Last July, he proposed an agreement to Senate Majority Leader Chuck Schumer (D-NY) to raise corporate, individual, and capital gains rates, as well as changing the taxation of carried interest.
So what happens next? Manchin seems to be providing Democrats a potential framework for passing a spending agenda that includes revenue raising measures capable of more than offsetting the spending proposals – thus reducing the deficit and, according to Democrats, addressing inflation.
Of course, a key factor that will determine the fate of tax rate hikes this year will be how they are received by other Democratic moderates, particularly Senator Sinema. Sinema continues to be opposed to such tax increases. As the pending mid-term elections get closer, such opposition may get stronger, particularly with her colleague Senator Mark Kelly (D-AZ) expected to be in a very tight race for re-election.
One thing is clear: Manchin is intent to advance his tax proposals as a way to combat inflation and the deficit, meaning they will receive serious consideration and stay alive. Thus, tax rate increases will remain on the table as the Build Back Better agenda continues to be considered. #TaxTake
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On March 3, Jorge and Marc will moderate "Floyd's Panel: Legislative Update" at the Federal Bar Association's 46th Annual Tax Law Conference.
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