40 NEW Tax Increases In Dem Bill
Here are six things to know about the plan.
House Democrats this week are moving forward with their long-awaited plan to raise taxes to help pay for their next big spending package. With more than 40 separate tax increases, collectively worth $2 trillion, it would be the largest package of tax increases in decades — and a test of Democrats’ willingness to raise rates.
Lawmakers want the money to fund plans to greatly boost government benefits, from expanding access to pre-K programs to beefing up Medicare — though Democrats remain at odds over the plan’s total size, with Sen. Joe Manchin of West Virginia balking at designs to spend $3.5 trillion.
Democrats are now racing to move the plan though the House, with the Ways and Means Committee taking it up Monday and Tuesday. Speaker Nancy Pelosi plans to have it approved and out of the House by the end of this month.
Here are six things to know about the plan.
No wealth tax
The U.S. has an income tax system, and not a wealth tax system like the one Sen. Elizabeth Warren (D-Mass.) advocates, and that’s not going to change under House Democrats’ proposal. With only a tiny majority in the chamber, and at the mercy of their moderates, Democrats are focused on raising existing income taxes on the rich rather than more controversial proposals to go after accumulated wealth.
Their plan would raise the top marginal income tax rate to 39.6 percent, from 37 percent; impose a new 3 percent surtax on people making more than $5 million; and raise the capital gains rate to 28.3 percent from 23.8 percent, among other changes.
Out are proposals like one by the Biden administration targeting the ability of the rich to pass assets on to heirs tax-free. Few defend the “stepped up basis at death” provisions the administration wants to restrict, but it has politically powerful advocates, such as farmers, and curbing the tax break was always a long shot.
All of that is good news for the uber rich like Jeff Bezos, who make their money not from fat salaries but because they own businesses that become extremely valuable. Democrats are proposing to toughen one type of wealth tax: the estate tax, by reducing its exemption rate by almost half, to $6 million for couples, and making other changes.
Corporations would pay big, reversing their 2017 gains
Republicans famously slashed the corporate rate to 21 percent from 35 percent as part of the Tax Cuts and Jobs Act. But they also simultaneously created new taxes on big companies’ overseas earnings. The net effect was that big business received a projected $330 billion tax cut, according to Congress’ nonpartisan scorekeepers.
Democrats are not proposing to completely reverse that corporate rate cut — they’d push it back up to 26.5 percent. But they are also tightening those taxes Republicans created on multinationals’ foreign profits and adding a few others. The combined result is a $963 billion tax increase on corporations, according to official estimates — which businesses complain is almost three times the tax cuts they received in 2017.
That would come as corporate tax receipts, which plunged after the TCJA, are now rebounding thanks to higher profits. Corporate payments are projected this year to total $268 billion, not that far off from the $297 billion they paid the year before Republicans’ tax cuts took effect.
Democrats would say those official estimates understated how much companies got out of the TCJA because it included tax increases that were likely to be reversed later by Congress. And many don’t think corporations were paying their fair share even before the GOP cuts.
Democrats are also cutting taxes
Their tax increases get all the attention, but Democrats want to cut lots of taxes as well. They want to extend their new monthly Child Tax Credit payment program and make permanent a recent expansion of the Earned Income Tax Credit (though some of those increases technically count as spending, not tax cuts).
They have a long list of clean energy tax breaks, including big new subsidies for buying electric cars, trucks and bikes, along with a host of provisions to do things like promote affordable housing, aid state governments and subsidize the wages of child care workers.
Some of the cuts they’ve proposed are surprising. Ways and Means Chair Richard Neal (D-Mass.) wants to create a new deduction for union members by allowing them to write off up to $250 in dues. And he has a proposal to help underwrite the wages of local news reporters, with a special payroll tax break for their publishers.
SALT debate left to higher-ups
Neal’s plan does not address the question of what to do about the $10,000 cap on the state and local tax deductions Republicans imposed in 2017, and his committee has no plans to tackle it either. Instead, he’s punting the issue up to Pelosi, who will deal with it after Ways and Means approves the rest of the legislation.
The issue has deeply divided Democrats, with lawmakers from high-tax states demanding its repeal, and others blanching at cutting a tax that would mostly benefit the wealthy — and muddle Democrats’ soak-the-rich message.
Pelosi probably won’t unveil a plan to address the cap until shortly before the entire spending and tax plan heads to the House floor, leaving little time for debate. That could also mean there will be some surprise pay-fors added at the last minute to defray the cost of whatever she decides.
U.S. Inflation Hit 30-Year High in October as Consumer Prices Jump 6.2%
Core index was up 4.6% as pandemic-related supply shortages, strong consumer demand continue
U.S. inflation hit a three-decade high in October, delivering widespread and sizable price increases to households for everything from groceries to cars due to persistent supply shortages and strong consumer demand.
The Labor Department said the consumer-price index—which measures what consumers pay for goods and services—increased in October by 6.2% from a year ago. That was the fastest 12-month pace since 1990 and the fifth straight month of inflation above 5%.
The core price index, which excludes the often-volatile categories of food and energy, climbed 4.6% in October from a year earlier, higher than September’s 4% rise and the largest increase since 1991.Consumer-price index, percent change froma year earlier.
On a monthly basis, the CPI increased a seasonally adjusted 0.9% in October from the prior month, a sharp acceleration from September’s 0.4% rise and the same as June’s 0.9% pace.
Price increases were broad-based, with higher costs for new and used autos, gasoline and other energy costs, furniture, rent and medical care, the Labor Department said. Food prices for both groceries and dining out rose by the most in decades. Prices fell for airline fares and alcohol.
U.S. stocks fell and bond prices rose as investors digested the impact of price pressure on the global economy.
Persistently higher inflation—triggered by a faster-than-anticipated but uneven economic recovery, trillions of dollars in pandemic-related government stimulus and other factors—is hitting consumers’ wallets. At the same time, a rebounding economy and healthy household balance sheets are both stoking demand and cushioning price increases.
The inflation surge is complicating the Federal Reserve’s strategy for unwinding easy-money policies the central bank imposed early in the pandemic. It has also emerged as a political factor affecting the Biden administration’s economic agenda.
Prices climbed the fastest in the South, a part of the country that reopened earlier in the pandemic but was hit relatively harder by the Delta variant of Covid-19. Prices were also up more in the Midwest than in the Northeast and West.
Americans have never been in so much debt
American households are carrying record amounts of debt as home and auto prices surge, Covid infections continue to fall and people get out their credit cards again.Between July and September, US household debt climbed to a new record of $15.24 trillion, the Federal Reserve Bank of New York said Tuesday.
It was an increase of 1.9%, or $286 billion, from the second quarter of the year.
“As pandemic relief efforts wind down, we are beginning to see the reversal of some of the credit card balance trends seen during the pandemic,” such as lower spending in favor of paying down debt balances, said Donghoon Lee, research officer at the New York Fed.
Now that the stimulus sugar rush has worn off, consumers are going back to their old ways of spending with their credit cards. Credit card balances rose by $17 billion, just as they had during the second quarter. But they’re still $123 bullion lower than at the end of 2019 before the pandemic hit.
Mortgages, which are the largest component of household debt, rose by $230 billion last quarter and totaled $10.67 trillion.Auto loans and student loan balances also increased, rising by $28 billion and $14 billion, respectively.
Even though credit card debt has yet to get back to its pre-pandemic level, total debt is already $1.1 trillion higher than at the end of 2019.
High spending spurred by even higher inflation
Americans are spending big at the moment. Economists’ explanation is, for the most part, “because they can”.
With the labor market recovery chugging along and the worker shortage driving up wages, people’s wallets are getting filled ahead of the holidays.
That’s a good thing, because everything is getting more expensive.
Inflation is sitting at multi-year highs thanks to supply chain disruptions that have increased the costs of shipping and raw materials. At the same time, consumer demand is also going through the roof.
The latest inflation data from early Tuesday showed prices producers receive for their products rose 0.6% in October, adjusted for seasonal swings, or 8.6% over the preceding 12-month period. Much of the increase was due to higher energy costs.
Businesses can only absorb so much of the increase in prices before passing the higher costs down to end-consumers.
Stripping out energy and food prices, as well as trade services, the producer price index rose a seasonally adjusted 0.4% last month, or 6.2% over the 12-month period.
The price index tracking intermediate demand — that’s goods and services sold to businesses — for processed goods jumped 2.1%, its biggest advance since May, mostly driven by higher energy costs.
Over the 12-month period ended October, the index has climbed 25.4%, the biggest increase since January 1975.Consumer price inflation, which tracks prices paid for food, housing and the like in October is due Wednesday morning.
IRS reporting requirement: Why crypto and NFT fans are worried about the infrastructure bill
Industry groups are concerned about a ‘digital assets’ provision that may require reporting cryptocurrency transactions to the Internal Revenue Service.
The $1.2 trillion infrastructure bill, which is on its way to President Biden’s desk, includes provisions to fund everything from new roads to improved broadband connections, but it also includes tax reporting provisions that people and organizations in the cryptocurrency and NFT worlds are concerned could stifle transactions.
Existing tax law, in a section of the U.S. tax code called 6050I, requires that people who receive more than $10,000 in cash and equivalents (like cashier’s checks and money orders) in many business transactions file a report with the Internal Revenue Service (IRS), including details about who paid them—such as names and Social Security numbers—or potentially face felony charges. The new law expands the definition of cash to include “digital assets” and comes as governments around the world grapple with the rapid rise of crypto and the potential for its use in money laundering. Critics worry the new provision could force participants in crypto transactions and NFT trades, which are often anonymous, to have to disclose information about the people they’re doing business with, which they simply might not have.
“Miners, stakers, lenders, decentralized application and marketplace users, traders, businesses, and individuals are all at risk of being subject to this reporting requirement, even though in most situations the person or entity in receipt is not in the position to report the required information,” warned attorney Abraham Sutherland, an adjunct professor at the University of Virginia School of Law and advisor to the Proof of Stake Alliance, an industry group, in a September report.
Decentralized finance, or defi, operations, where automated smart contracts essentially provide financial services, could also be affected by the provision, warn people in the industry.
“This 6050I provision in the infrastructure bill seems like a disaster if I understand it,” said Coinbase CEO Brian Armstrong in a tweet. “Criminal felony statute that could freeze a lot of healthy crypto behavior (like Defi).”
The new law also contains a provision that would expand the definition of “broker” under the law to include cryptocurrency brokers, which some in the industry—including a group called the Crypto Council for Innovation—have feared would rope in coin miners and developers involved in building and maintaining crypto systems. Brokers are also required to report many transactions to the IRS.
Bloomberg reported earlier this year that the Treasury Department, which is ultimately responsible for putting out regulations saying how the new provisions will actually work in practice, is likely to exempt organizations and people that aren’t brokers in the usual sense. Since getting the law itself amended seems difficult with a fiercely divided Congress, it’s likely that the Treasury Department will see furious lobbying by the crypto industry to make sure it doesn’t interfere too much with their operations.