ECONOMY AND POLICY
September 16, 2021
Washington Policy Analyst Ed Mills outlines key components of the initial reconciliation package draft.
Tax details are beginning to emerge as House Democrats are crafting their reconciliation package. Included in the initial draft is a list of $2.9 trillion in tax provisions to pay for the targeted $3.5 trillion in spending.
Key details include the introduction of a progressive corporate tax rate from 18% to 26.5%, an increase in the top individual tax rate to 39.6% ($400,000 income threshold), a 3% surcharge for individuals with annual income above $5 million, an increase in investment taxes to 25% (effective rate of 28.8% with Affordable Care Act surcharge), a number of changes to high-balance IRAs/restrictions on Roth IRA conversions, lower estate tax exclusions, increased IRS enforcement, changes to international taxes, among other provisions.
Substantive changes are promised for state and local tax (SALT) relief, but are still under negotiation. The final details of these provisions are likely to change significantly. These details further narrow the potential outcomes, while the potential impact of individual provisions continues to pose risk, the overall list of tax provisions are lower than initially proposed by President Biden. Overall, the process to a final bill remains on track, but a looming budget showdown at the end of September and the debt limit present complicating procedural factors in the weeks ahead.
Note that the inclusion or the exclusion of a tax provision in this draft is only instructive of where negotiations are currently. There will be a number of changes to this bill before any final consideration.
Corporate tax modifications
Graduated corporate tax with higher top rate
International tax adjustments
Limitation on REIT income test under Section 856
Individual tax modifications
Higher top marginal income tax rate
Higher capital gains rate
New surtax on income over $5 million
Limited qualified business income deduction (199A)
Elimination of excess business loss deduction
Phase out of higher estate and gift tax exemption
Increase in estate tax valuation limitation for family farms or businesses
Retirement plan modifications
Elimination of Roth conversions
Prohibition of after-tax contribution/conversion
Restricted IRA/defined benefit plan contributions
Minimum required distributions for accounts
Prohibition of IRA asset investment in entities with owner interest