Surprise: quarantine financial aid package includes not only payments, but also tax increases - ForumDaily
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Surprise: the quarantine financial aid package includes not only payments, but also tax increases

Democrats have poured three tax hikes for large corporations into a COVID-19 relief package. Together, this increase amounts to about $ 60 billion. Political.

Photo: Shutterstock

The first proposal raises taxes for companies that pay more than $ 1 million to employees in management positions. Another provision changes the way multinational corporations are taxed. The third focuses on how unincorporated business owners report their losses.

This is surprising because many expected Democrats to postpone their tax hike plans for later. Many lawmakers are wary of them now that the economy is still struggling with the COVID-19 pandemic.

But they were having trouble complying with strict budget rules, especially after some wanted to add provisions such as the waiver of taxes on unemployment benefits.

If Democrats exceed their $ 1,9 trillion budget cap for this plan, they will lose procedural protections for the bill.

The tax hike chosen by the Democrats to keep spending under control of their plan had the political advantage of being subtle. Unlike things like raising the corporate tax rate or the marginal tax rate for the rich, the measures they have chosen do not generate much noise.

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They also fit Democrats' themes of tackling inequality by forcing wealthy people to pay more.

Because these provisions were added later in the legislative process, the lobbyists did not have time to protest these plans.

“Everyone was caught off guard,” said a former Democratic adviser. “They chose obscure objects—things that weren’t on sight.”

Of course, the real test for Democrats, who pledged harsh tax hikes for the rich during last year's campaign, will come later when faced with demands to pay for something as big as Biden's plans for a massive infrastructure package.

It will cost trillions, and legislators will need a much larger tax hike to cover the cost. However, many are less enthusiastic about raising taxes, and it remains to be seen whether legislators choose a more politically expedient way to fund their plans with budget deficits.

Some say the quarantine package provides a hint of what lies ahead.

"It's clear that this is a signal that Democrats will look to high-income earners and large corporations for revenue for the upcoming investment package," said Seth Hanlon, a senior fellow at the Center for American Progress.

Many Senate Democrats were worried that millions of unemployed people would be surprised to learn this tax season that they must pay taxes on their unemployment benefits. They added an amendment to the coronavirus plan to exempt taxes on the first $ 10 of aid.

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To offset the cost of the package, Democrats turned to a rule that Republicans created as part of the 2017 tax cut. It limits to $ 500 the amount of damages that certain people who own an unincorporated business can use to offset other income and thereby reduce their tax bills.

The issue came as a lightning rod last year when lawmakers temporarily suspended the limit as part of a previous stimulus package. At the time, lawmakers were trying to put money into the hands of business owners to prevent layoffs, making it easier for them to get tax refunds, and a $ 500 limit would have prevented that.

Many progressives have criticized the move, calling it oppression of the rich.

Another provision will bring in $ 6 billion. Companies are usually allowed to deduct employee salaries from their tax accounts, although there are rules restricting these deductions when the CEO and several other senior company employees make more than $ 1 million. Democrats double the number of officials, to 10, who qualify. under this limitation.

The third clause, which forecasters say will bring in $ 22 billion, removes an obscure clause that gives multinationals more flexibility in deciding how to account for their interest expense when paying taxes.

To be sure, the increase in taxes is marginal compared to the tax revenue cut by legislation (about $ 590 billion), according to the official Joint Tax Committee. Lawmakers are sending another round of checks to millions of Americans and are also temporarily expanding popular perks like the Child Tax Credit and Earned Income Tax Credit.

Rep. Lloyd Doggett said the Democrats could do much more.

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“While these modest changes in the Senate are welcome, they demonstrate the enormous untapped revenue potential that could likely be put to use to help families,” he said. “These revenues could be used to extend the child tax credit or provide health insurance to more uninsured people.”

This may not be the last time Democrats have turned to some of these specific provisions in search of money.

As for executive salaries, Doggett is convinced, the restrictions can be squeezed even further. After all, a complete ban on deductions for salaries exceeding $ 1 million will bring tens of billions of dollars to the budget.

And Senator Sheldon Whitehouse, who sits on the tax finance committee, hopes Democrats will further expand the "loss cap" for unincorporated enterprises in subsequent bills.

“The last relief bill contained only a small temporary solution, but I hope that we will make the loss cap permanent,” he concluded.

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