Tax Credits, Deductions and Exemptions

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    Carried Interest Is Back in the Headlines. Why It’s Not Going Away.

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    Changes demanded by Senator Kyrsten Sinema will preserve a tax loophole that Democrats have complained about for years.For years, Democrats and even some Republicans such as former President Donald J. Trump have called for closing the so-called carried interest loophole that allows wealthy hedge fund managers and private equity executives to pay lower tax rates than entry-level employees.Those efforts have always failed to make a big dent in the loophole — and the latest proposal to do so also faltered this week. Senate leaders announced on Thursday that they had agreed to drop a modest change to the tax provision in order to secure the vote of Senator Kyrsten Sinema, Democrat of Arizona, and ensure passage of their Inflation Reduction Act, a wide-ranging climate, health care and tax bill.An agreement reached last week between Senator Chuck Schumer, the majority leader, and Senator Joe Manchin III, Democrat of West Virginia, would have taken a small step in the direction of narrowing carried interest tax treatment. However, it would not have eliminated the loophole entirely and could still have allowed rich business executives to have smaller tax bills than their secretaries, a criticism lobbed by the investor Warren E. Buffett, who has long argued against the preferential tax treatment.The fate of the provision was always in doubt given the Democrats’ slim control of the Senate. And Ms. Sinema had previously opposed a carried interest measure in a much larger bill called Build Back Better, which never secured the 50 Senate votes needed — Republicans have been unified in their opposition to any tax increases.Had the legislation passed in the form that Mr. Schumer and Mr. Manchin presented it last week, the shrinking of the carried interest exception would have brought Democrats a tiny bit closer to realizing their vision of making the tax code more progressive.What is carried interest?Carried interest is the percentage of an investment’s gains that a private equity partner or hedge fund manager takes as compensation. At most private equity firms and hedge funds, the share of profits paid to managers is about 20 percent.Under existing law, that money is taxed at a capital-gains rate of 20 percent for top earners. That’s about half the rate of the top individual income tax bracket, which is 37 percent.The 2017 tax law passed by Republicans largely left the treatment of carried interest intact, after an intense business lobbying campaign, but did narrow the exemption by requiring private equity officials to hold their investments for at least three years before reaping preferential tax treatment on their carried interest income.What would the Manchin-Schumer agreement have done?The agreement between Mr. Manchin and Mr. Schumer would have further narrowed the exemption, in several ways. It would have extended that holding period to five years from three, while changing the way the period is calculated in hopes of reducing taxpayers’ ability to game the system and pay the lower 20 percent tax rate.Senate Democrats say the changes would have raised an estimated $14 billion over a decade, by forcing more income to be taxed at higher individual income tax rates — and less at the preferential rate.The longer holding period would have applied only to those who made $400,000 per year or more, in keeping with President Biden’s pledge not to raise taxes on those earning less than that amount.The tax provision echoed a measure that was initially included in the climate and tax bill that House Democrats passed last year but that stalled in the Senate. The carried interest language was removed amid concern that Ms. Sinema, who opposed the measure, would block the overall legislation.Why hasn’t the loophole been closed by now?Many Democrats have tried for years to completely eliminate the tax benefits private equity partners enjoy. Democrats have sought to redefine the management fees they get from partnerships as “gross income,” just like any other kind of income, and to treat capital gains from partners’ investments as ordinary income.Such a move was included in legislation proposed by House Democrats in 2015. The legislation would also have increased the penalties on investors who did not properly apply the proposed changes to their own tax filings.The private equity industry has fought back hard, rejecting outright the basic concepts on which the proposed changes were based.“No such loophole exists,” Steven B. Klinsky, the founder and chief executive of the private equity firm New Mountain Capital, wrote in an opinion article published in The New York Times in 2016. Mr. Klinsky said that when other taxes, including those levied by New York City and the state government, were accounted for, his effective tax rate was between 40 and 50 percent.What would the change have meant for private equity?The private equity industry has defended the tax treatment of carried interest, arguing that it creates incentives for entrepreneurship, healthy risk-taking and investment.The American Investment Council, a lobbying group for the private equity industry, described the proposal as a blow to small business.“Over 74 percent of private equity investment went to small businesses last year,” said Drew Maloney, chief executive of the council. “As small-business owners face rising costs and our economy faces serious headwinds, Washington should not move forward with a new tax on the private capital that is helping local employers survive and grow.”The Managed Funds Association said the changes to the tax code would hurt those who invested on behalf of pension funds and university endowments.“Current law recognizes the importance of long-term investment, but this proposal would punish entrepreneurs in investment partnerships by not affording them the benefit of long-term capital gains treatment,” said Bryan Corbett, the chief executive of the association.“It is crucial Congress avoids proposals that harm the ability of pensions, foundations and endowments to benefit from high-value, long-term investments that create opportunity for millions of Americans.”Jim Tankersley More

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    Analysis Deems Biden’s Climate and Tax Bill Fiscally Responsible

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    Despite Republican claims, the new legislation would be only a modest corporate tax increase, Congress’s Joint Committee on Taxation found.After more than a year of trying — and failing — to pack much of President Biden’s domestic agenda into a single tax-and-spend bill, Democrats appear to have finally found a winning combination. They’ve scrapped most of the president’s plans, dialed down the cost and focused on climate change, health care and a lower budget deficit.As soon as party leaders announced that new bill last week, Republicans began attacking it in familiar terms. They called it a giant tax increase and a foolish expansion of government spending, which they alleged would hurt an economy reeling from rapid inflation.But outside estimates suggest the bill would not cement a giant tax increase or result in profligate federal spending.An analysis by the Joint Committee on Taxation, a congressional nonpartisan scorekeeper for tax legislation, suggests that the bill would raise about $70 billion over 10 years. But the increase would be front-loaded: By 2027, the bill would actually amount to a net tax cut each year, as new credits and other incentives for low-emission energy sources outweighed a new minimum tax on some large corporations.That analysis, along with a broader estimate of the bill’s provisions from the nonpartisan Committee for a Responsible Federal Budget, suggests that the legislation, if passed, would only modestly add to federal spending over the next 10 years. By the end of the decade, the bill would be reducing federal spending, compared with what is scheduled to happen if it does not become law.And because the bill also includes measures to empower the Internal Revenue Service to crack down on corporations and high-earning individuals who evade taxes, it is projected to reduce the federal budget deficit over a decade by about $300 billion.Adding up the headline cost for what Democrats are calling the Inflation Reduction Act is more complicated than it was for many previous tax or spending measures that lawmakers approved. The bill blends tax increases and tax credits, just as Republicans did when they passed President Donald J. Trump’s signature tax package in 2017. But it also includes a spending increase meant to boost tax revenues and a spending cut meant to put more money in consumers’ pockets.Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, said the composition of the deal was vastly different from a larger bill that Democrats failed to push through the Senate in the fall. It included several spending programs that were set to expire after a few years, and budget hawks warned that the overall package would add heavily to federal debt if those programs were eventually made permanent, as Washington has been known to do, without offsetting tax increases.Ms. MacGuineas called the original idea, known as Build Back Better, “a massive gimmicky budget buster.” She had kinder words for the new package, saying it “manages to push against inflation, reduce the deficit, and, once fully phased in, it would actually cut net spending, without raising net taxes.”“That is a pretty monumental improvement,” she added.The bill springs from an agreement between Senator Chuck Schumer of New York, the majority leader, and Senator Joe Manchin III of West Virginia, a key centrist Democrat. President Biden blessed it last week, and it carries what remains of what was once his $4 trillion domestic agenda.Understand What Happened to Biden’s Domestic AgendaCard 1 of 7‘Build Back Better.’ More

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    As Broadway Struggles, Governor Hochul Proposes Expanded Tax Credit

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    With Omicron complicating Broadway’s return, Gov. Kathy Hochul proposed more assistance for commercial theater, which her budget director called “critical for the economy.”As Broadway continues to reel from the economic effects of the coronavirus pandemic, Gov. Kathy Hochul is proposing to expand and extend a pandemic tax credit intended to help the commercial theater industry rebound.Ms. Hochul on Tuesday proposed budgeting $200 million for the New York City Musical and Theatrical Production Tax Credit, which provides up to $3 million per show to help defray production costs.“They were starting to recover before Omicron, and then, as you have all seen, a lot of these performance venues had to shut down again, and those venues are critical for the economy,” the state budget director, Robert Mujica, told reporters.The tax credit program, which began last year under Gov. Andrew Cuomo, was initially capped at $100 million. Early indications are that interest is high: Nearly three dozen productions have told the state they expect to apply, said Matthew Gorton, a spokesman for Empire State Development, the state’s economic development agency.The Hochul administration decided to seek to expand the tax credit program — and to extend the initial application deadline, from Dec. 31, 2022 to June 30, 2023 — as it became clear that Broadway’s recovery from its lengthy pandemic shutdown would be bumpier than expected.Shows began resuming performances last summer, and many were drawing good audiences — Ms. Hochul visited “Chicago” and “Six” in October, while Mr. Gorton saw “The Lehman Trilogy” and “To Kill a Mockingbird.”But the industry is now struggling after a spike in coronavirus cases prompted multiple cancellations over the ordinarily lucrative holiday season, and then attendance plunged. Last week, 66 percent of Broadway seats were occupied, according to the Broadway League; that’s up from 62 percent the previous week, but down from 95 percent during the comparable week before the pandemic.“Clearly, we’re not out of the woods yet,” said Jeff Daniel, who is the chairman of the Broadway League’s Government Relations Committee, as well as co-chief executive of Broadway Across America, which presents touring shows in regional markets. Mr. Daniel, still recovering from his own recent bout of Covid, welcomed the governor’s proposal, and said the League would work to urge the Legislature to approve it.“Every show we can open drives jobs and economic impact,” said Mr. Daniel, who noted the close economic relationship between Broadway and other businesses, including hotels and restaurants. “If we can maximize Broadway, we maximize tourism.”Under the program, shows can receive tax credits to cover up to 25 percent of many production expenditures, including labor. As a condition of the credit, shows must have a state-approved diversity and arts job training program, and take steps to make their productions accessible to low-income New Yorkers. More

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    Child Tax Credit’s Extra Help Ends, Just as Covid Surges Anew

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    A pandemic benefit that many progressives hoped to make permanent has lapsed in a congressional standoff. Researchers say it spared many from poverty.For millions of American families with children, the 15th of the month took on a special significance in 2021: It was the day they received their monthly child benefit, part of the Biden administration’s response to the pandemic.The payments, which started in July and amounted to hundreds of dollars a month for most families, have helped millions of American families pay for food, rent and child care; kept millions of children out of poverty; and injected billions of dollars into the U.S. economy, according to government data and independent research.Now, the benefit — an expansion of the existing child tax credit — is ending, just as the latest wave of coronavirus cases is keeping people home from work and threatening to set off a new round of furloughs. Economists warn that the one-two punch of expiring aid and rising cases could put a chill on the once red-hot economic recovery and cause severe hardship for millions of families already living close to the poverty line.“It’s going to be hard next month, and just thinking about it, it really makes me want to bite my nails to the quick,” said Anna Lara, a mother of two young children in Huntington, W.Va. “Honestly, it’s going to be scary. It’s gong to be hard going back to not having it.”Ms. Lara, 32, lost her job in the pandemic, and with the cost of child care rising, she has not been able to return to work. Her partner kept his job, but the child benefit helped the couple make ends meet at a time of reduced income and rising prices.“Your children watch you, and if you worry, they catch on to that,” she said. “With that extra cushion, we didn’t have to worry all the time.”The end of the extra assistance for parents is the latest in a long line of benefits “cliffs” that Americans have encountered as pandemic aid programs have expired. The Paycheck Protection Program, which supported hundreds of thousands of small businesses, ended in March. Expanded unemployment benefits ended in September, and earlier in some states. The federal eviction moratorium expired last summer. The last round of stimulus payments landed in Americans’ bank accounts last spring.Relative to those programs, the rollback in the child tax credit is small. The Treasury Department paid out about $80 billion over six months in the form of checks and direct deposits of up to $300 per child each month. That is far less than the more than $240 billion in stimulus payments issued on a single day last March.Unlike most other programs created in response to the pandemic, the child benefit was never intended to be temporary, at least according to many of its backers. Congress approved it for a single year as part of the $1.9 trillion American Rescue Plan, but many progressives hoped that the payments, once started, would prove too popular to stop.That didn’t happen. Polls found the public roughly divided over whether the program should be extended, with opinions splitting along partisan and generational lines. And the expanded tax credit failed to win over the individual whose opinion mattered most: Senator Joe Manchin III, Democrat of West Virginia, who cited concerns over the cost and structure of the program in his decision to oppose Mr. Biden’s climate, tax and social policy bill. The bill, known as the Build Back Better Act, cannot proceed in the evenly divided Senate without Mr. Manchin’s support.To supporters of the child benefit, the failure to extend it is especially frustrating because, according to most analyses, the program itself has been a remarkable success. Researchers at Columbia University estimate that the payments kept 3.8 million children out of poverty in November, a nearly 30 percent reduction in the child poverty rate. Other studies have found that the benefit reduced hunger, lowered financial stress among recipients and increased overall consumer spending, especially in rural states that received the most money per capita.Congress last spring expanded the existing child tax credit in three ways. First, it made the benefit more generous, providing as much as $3,600 per child, up from $2,000. Second, it began paying the credit in monthly installments, usually deposited directly into recipients’ bank accounts, turning the once-yearly windfall into something closer to the children’s allowances common in Europe.Finally, the bill made the full benefit available to millions who had previously been unable to take full advantage of the credit because they earned too little to qualify. Poverty experts say that change, known in tax jargon as “full refundability,” was particularly significant because without it, a third of children — including half of all Black and Hispanic children, and 70 percent of children being raised by single mothers — did not receive the full credit. Mr. Biden’s plan would have made that provision permanent.“What we’ve seen with the child tax credit is a policy success story that was unfolding, but it’s a success story that we risk stoping in its tracks just as it was getting started,” said Megan Curran, director of policy at Columbia’s Center on Poverty and Social Policy. “The weight of the evidence is clear here in terms of what the policy is doing. It’s reducing child poverty and food insufficiency.”But the expanded tax credit doesn’t just go to the poor. Couples earning as much as $150,000 a year could receive the full $3,600 benefit — $3,000 for children 6 and older — and even wealthier families qualify for the original $2,000 credit. Critics of the policy, including Mr. Manchin, have argued that it makes little sense to provide aid to relatively well-off families. Many supporters of the credit say they’d happily limit its availability to wealthier households in return for maintaining it for poorer ones.Mr. Manchin has also publicly questioned the wisdom of unconditional cash payments, and has privately voiced concerns that recipients could spend the money on opioids, comments that were first reported by The Wall Street Journal and confirmed by a person familiar with the discussion. But a survey conducted by the Census Bureau found that most recipients used the money to buy food, clothing or other necessities, and many saved some of the money or paid down debt. Other surveys have found similar results.For one of Mr. Manchin’s constituents, Ms. Lara, the first monthly check last year arrived at an opportune moment. Her dishwasher had broken days earlier, and the $550 a month that she and her family received from the federal government meant they could replace it.Ms. Lara, who has a 6-year-old daughter and a 3-year-old son and whose partner earns about $40,000 a year, said the family had long lived “right on the edge of need” — not poor, but never able to save enough to withstand more than a modest setback.The monthly child benefit, she said, let them step a bit further back from the edge. It allowed her to get new shoes and a new car seat for her daughter, stock up on laundry detergent when she found it on sale and fix the brakes on her car.A line at a Covid testing site in Atlanta on Friday. The child tax benefit is ending just as the latest wave of coronavirus cases is keeping people home from work.Nicole Craine for The New York Times“None of the dash lights are on, which is amazing,” she said.Some researchers have questioned the policy’s effectiveness, particularly over the long term. Bruce D. Meyer, an economist at the University of Chicago who studies poverty, said that whatever the merits of direct cash payments at the height of the pandemic-induced disruptions, a permanent policy of providing unconditional cash to parents could have unintended consequences. He and several co-authors recently published a working paper finding that the child benefit could discourage people from working, in part because it eliminated the work incentives built into the previous version of the tax credit.“Early on, we just wanted to get cash in people’s hands — we were worried about a recession, we were worried about people being able to pay for their groceries,” Mr. Meyer said. Now, he said, “we certainly should be more focused on the longer-term effects, which include likely larger effects on labor supply.”Analyses of the data since the new child benefit took effect, however, have found no evidence that it has done much to discourage people from working, and some researchers say it could actually lead more people to work by making it easier for parents of young children to afford child care.“There’s every reason to believe that in the current labor market, the child tax credit is work-enabling, and no evidence to the contrary has been presented,” said Samuel Hammond, director of poverty and welfare policy at the Niskanen Center, a research organization in Washington.Mr. Hammond said the child benefit should also have broader economic benefits. In a report last summer, he estimated that the expansion would increase consumer spending by $27 billion nationally and create the equivalent of 500,000 full-time jobs. The biggest impact, on a percentage basis, would come in rural, mostly Republican-voting states where families are larger and incomes are lower, on average.Some Republican critics of the expanded child tax credit, including Senator Roy Blunt of Missouri, have argued that it has essentially done too much to increase spending — that by giving people more money to spend when the supply chain is already strained, the government is contributing to faster inflation.But many economists are skeptical that the tax credit has played much of a role in causing high inflation, in part because it is small compared with both the economy and the earlier rounds of aid distributed during the pandemic.“That’s a noninflationary program,” said Joe Brusuelas, chief economist at the accounting firm RSM. “That’s dedicated toward necessities, not luxuries.”For those receiving the benefit, inflation is an argument for maintaining it. Ms. Lara said she had noticed prices going up for groceries, utilities and especially gas, stretching her budget even thinner.“Right now, both of my vehicles need gas and I can’t put gas in the car,” she said. “But it’s OK, because I’ve got groceries in the house and the kids can play outside.”Emily Cochrane More

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    Democrats Push for Agreement on Tax Deduction That Benefits the Rich

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    Lawmakers are coalescing around a deal to suspend a $10,000 cap on state and local tax deductions that was imposed during the Trump administration.WASHINGTON — Democrats were readying an agreement on Tuesday that would repeal a cap on the amount of state and local taxes that homeowners can deduct as part of a broader $1.85 trillion spending bill, a move that could amount to a significant tax cut for wealthy Americans in liberal states.But some liberals quickly balked at the emerging agreement, which would suspend a $10,000 cap on the so-called SALT deduction for five years, removing a limit that Republicans included in their 2017 tax package as a way to pay for cuts for corporations and the rich. The suspension would kick in for deductions related to property taxes and state and local income taxes accrued in 2021 and would run through 2025.If it passes, the deal would be a major concession to a handful of Democrats from high-income states like New York and New Jersey who have insisted on lifting the cap, in order to win their votes for President Biden’s social policy and climate change package.But liberal Democrats have scoffed at the push to include the costly proposal in the domestic policy package, particularly as party leaders have curtailed or eliminated other spending priorities as they pare down a $3.5 trillion blueprint to appease moderate and conservative-leaning Democrats.Senator Bernie Sanders of Vermont, the chairman of the Budget Committee, blasted the repeal on Tuesday as a giveaway to the rich that went against the Democrats’ priorities.“I think there is a compromise to be reached here, a middle ground, which says that for families earning less than $400,000, they can take a complete exemption, but not families earning more than that,” said Mr. Sanders, who had released a blistering statement criticizing the agreement. “What exists is unacceptable, and one way or another it will be dealt with.”It remains unclear whether the agreement would apply broadly or if Democrats planned to impose an income cap to prevent the wealthiest Americans from receiving what amounts to a tax cut.A straight repeal of the cap for every household that claims the deduction would siphon huge amounts of revenue from the federal government: about $90 billion per year, according to budget experts.To get around that, the five-year suspension assumes that the cap is reinstated in 2026 for another five years, allowing Democrats to use a budget sleight of hand to show its removal as revenue neutral in the traditional 10-year window that lawmakers look to when considering a bill’s impact on the federal deficit.Three people with knowledge of the emerging agreement described it on the condition of anonymity and cautioned that discussions were continuing. Details of the talks were first reported by Punchbowl News.With Republicans opposed to Mr. Biden’s domestic policy plan, Democrats must win the support of all 50 senators who caucus with the party and all but three House lawmakers for the plan to become law. That effort is further complicated because Democrats are using an arcane process known as budget reconciliation, which shields fiscal legislation from the 60-vote filibuster threshold in the Senate.Those restrictions mean that any lawmaker, particularly in the Senate, could effectively tank the legislation over his or her priorities, including insisting that the bill repeal SALT. Democrats from the high-income states that have been most affected by the limit have spent the past five years searching for an opportunity to roll it back for their constituents, despite complaints that it would largely benefit the wealthy.House Democrats including Representatives Tom Suozzi of New York, Mikie Sherrill of New Jersey and Josh Gottheimer of New Jersey have made clear that they will not support the broader spending package without a SALT repeal. Mr. Gottheimer wore a large button emblazoned with the words “no SALT, no dice” to votes on Capitol Hill on Tuesday. Senator Chuck Schumer of New York, the majority leader, has also voiced support for getting rid of the cap.“We’ve been fighting for this for years,” Mr. Gottheimer said on Tuesday, adding that reinstating the full deduction would amount to giving “tax relief to families that deserve it and who got hosed in 2017.”Delaying the cap for five years in a 10-year window could effectively allow lawmakers to claim that the proposal would not have an impact on the package’s cost. Yet some Democrats appeared confident that lawmakers would act again in five years to prevent the cap from going back into effect.“It’ll be pretty clear when they get tax relief, it’s going to be hard to take that back,” Mr. Gottheimer said, referring to families in his district.The SALT limit resulted in tax increases for wealthier Americans beginning in 2018, particularly higher earners from high-tax states, and helped Democrats capture some House seats that Republicans previously held in New Jersey, California and elsewhere.The deduction is largely used by wealthy homeowners who itemize their deductions and live in states and cities with high taxes, which tend to be led by Democrats. Democrats accused Republicans of using the cap to pay for other tax cuts for the rich and to penalize liberal states.“My guess is the majority of Americans with a net worth of $50 to $300 million would get a tax cut under the Build Back Better plan with a full repeal of SALT,” Jason Furman, an economist at Harvard who was the chairman of the White House Council of Economic Advisers under President Barack Obama, said on Twitter on Tuesday. “The bill would do more for the super-rich than it does for climate change, childcare or preschool. That’s obscene.”But several lawmakers in the New York and New Jersey delegations have warned that their votes for the domestic policy package hinged on the inclusion of the provision, and Democrats have haggled for months over a possible solution.“We’re still going at it over it,” said Representative Richard E. Neal of Massachusetts, the Democratic chairman of the Ways and Means Committee, who joked on Tuesday that he had earned “a Ph.D. in the SALT deduction because it’s been argued from every perspective I can think of.”The Committee for a Responsible Federal Budget described the repeal of the SALT cap as a “regressive” tax cut, estimating that it would cost $90 billion a year in lost government revenue. The wealthiest would make out the best, with a SALT cap repeal distributing more than $300,000 per household in the top 0.1 percent of earners and only $40 for a middle-income family over the first two years.“With the SALT cap repealed and current tax rates retained, in fact, the reconciliation package might actually offer a net tax cut for most high-income households,” the group said.The right-leaning Tax Foundation estimated that repealing the cap would increase after-tax income of the top 1 percent of earners by 2.8 percent, while the bottom 80 percent would get minimal benefit.Republicans seized on the agreement on Tuesday, accusing Democrats of hypocrisy for backing an “anti-progressive” handout.“First Democrats cut out paid leave,” J.P. Freire, a spokesman for Republicans on the House Ways and Means Committee, said on Twitter. “Now they’re shoveling money to the rich.” More

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    How $2 Trillion in Tax Increases in Biden's Bill Target Companies and the Rich

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    The proposal to fund the president’s sprawling spending plan mostly turns up the dial on more conventional tax policies, while trying to curb maneuvers that allow tax avoidance.WASHINGTON — President Biden’s new plan to pay for his climate change and social policy package includes nearly $2 trillion in tax increases on corporations and the rich. But many of the more contentious and untested proposals that Democrats have been considering in recent weeks were left on the cutting-room floor.The latest proposal reflects the reality that moderate Democrats are unwilling to back certain ideas aimed at raising money, including taxing the unrealized capital gains of billionaires and giving the Internal Revenue Service more insight into the finances of taxpayers. Ultimately, the package of tax increases mostly turns up the dial on more conventional tax policies, while adding some new wrinkles to curb maneuvers that allow tax avoidance.“I think in terms of who they’re targeting, they did decide to target the larger population of very rich people and not just get the money from a very small group of superrich people,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center.Here’s a look at what’s in the new tax plan:Taxing the rich.Instead of a wealth tax or a special tax on billionaires, Mr. Biden rolled out a new “surtax” on income for multimillionaires and billionaires. It would effectively raise the top tax rate on ordinary income to 45 percent for the highest earners.Those with adjusted gross income of more than $10 million would face an additional 5 percent tax on top of the 37 percent marginal tax rate they already pay. Those making more than $25 million would face an extra 3 percent surtax.The Biden administration estimates that these tax increases would hit the top .02 percent of taxpayers and raise $230 billion of tax revenue over a decade.The plan also aims to ensure that people making more than $400,000 are not able to use loopholes to avoid paying a 3.8 percent Medicare tax. The White House estimates that provision alone will generate $250 billion in tax revenue over the next 10 years.Making corporations pay more.Borrowing a page from his campaign playbook, Mr. Biden wants to impose a 15 percent minimum tax on profitable companies that have little to no federal tax liability. Many profitable companies are able to reduce or eliminate their tax liability through the use of tax credits, deductions and previous losses that can carry over. The new tax would apply to companies with more than $1 billion in so-called book income — profits that firms report to their shareholders but not to the I.R.S.The plan is meant to ensure that the approximately 200 companies that pay no corporate income tax will have to pay some money to the federal government.The White House estimates the provision, which was also included in a plan presented by Senate Democrats, will raise an additional $325 billion in tax revenue over a decade.Chye-Ching Huang, the executive director of the Tax Law Center at New York University, said on Thursday that the proposal could mean that financial statements where book income is reported could become the new “locus for tax avoidance.”A separate proposal would also enact a 1 percent surcharge on corporate stock buybacks. Buybacks have surged along with the stock market, with cash-rich firms like Apple, JPMorgan Chase and Exxon spending billions of dollars each year to buy back, then retire, shares in their own companies. That can help drive up the company’s stock price, enriching both shareholders and corporate executives whose compensation is often tied to their firm’s stock performance.The provision is projected to raise $125 billion over 10 years.Ending the tax race to the bottom.Mr. Biden’s framework would raise the tax that companies pay on foreign earnings to 15 percent, putting the United States in line with a global minimum tax that is being completed at the Group of 20 summit in Rome this week.The Biden administration initially wanted to double the current rate to 21 percent from 10.5 percent. In settling on 15 percent, the U.S. rate would match what was agreed to by the 136 countries participating in the global deal and could blunt criticism that American companies will face a competitive disadvantage.The global agreement is meant to end corporate tax havens and stop what Treasury Secretary Janet L. Yellen describes as the “race to the bottom” of declining corporate tax rates around the world.To deter companies from finding ways to avoid the tax, the plan would impose a penalty rate on foreign corporations based in countries that are not part of the agreement.The Biden administration projects the international plans would raise $350 billion over a decade.Narrowing the tax gap.White House and Treasury Department officials have spent months pushing a proposal to narrow the $7 trillion gap in taxes that are owed by individuals and businesses but not collected. The administration initially wanted to invest $80 billion in additional enforcement staffing at the I.R.S. and require banks to hand over more information about the finances of their customers.Under the new proposal, the I.R.S. would get more money to ramp up audits of people making more than $400,000. However, the new bank reporting proposal — which the Treasury has called critical to its ability to hunt down hidden revenue — was conspicuously absent. A lobbying campaign from banks prompted huge blowback from lawmakers, including Senator Joe Manchin III, a West Virginia Democrat whose vote is critical to passing the overall package.Treasury officials and a group of Senate Democrats are continuing to negotiate with Mr. Manchin on narrowing the proposal in a way that he could support.As it stands, the plan to bolster I.R.S. enforcement is projected to raise $400 billion over a decade, down from the $700 billion in the original proposal.Reducing the deficit, maybe.Mr. Biden said on Thursday that his plans were “fiscally responsible” and claimed that the proposals, if enacted, would reduce the country’s budget deficit.The $2 trillion of proposed tax increases would more than offset the $1.85 trillion in spending on housing, child care and climate initiatives. However, nonpartisan scorekeepers such as the Congressional Budget Office have in the past offered less rosy projections of what Biden administration proposals might actually raise in revenue.Additional I.R.S. enforcement personnel will take years to get up to speed, and audits could be less effective without the additional bank information the Treasury Department is seeking.Some Democratic lawmakers are also still fighting for the inclusion of provisions that could actually cost money, including a partial or temporary restoration of SALT, the state and local tax deduction that Republicans capped in 2017. Last-minute additions such as that could add to the cost of the overall package. More

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    What Will It Take for Electric Vehicles to Create Jobs, Not Cut Them?

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    A report by a liberal think tank tries to quantify the potential employment gains and losses, concluding that subsidies will be crucial.When President Biden announced his multitrillion-dollar jobs plan in March, it included nearly $175 billion in spending to encourage Americans to buy electric vehicles.The money would help ensure “that these vehicles are affordable for all families and manufactured by workers with good jobs,” the White House wrote at the time.Now, as Mr. Biden’s plan wends its way through Congress, a liberal think tank has tried to flesh out the number of jobs to be gained or lost in the transition away from internal-combustion vehicles.The report, released Wednesday by the Economic Policy Institute, concluded that it would take government subsidies focused on developing a domestic supply chain and increasing demand for U.S.-made vehicles to avoid job losses.It found that without additional government investment, the industry could lose about 75,000 jobs by 2030, the year by which Mr. Biden wants half the new vehicles sold in the country to be electric.By contrast, the report said, if government subsidies were targeted to increase the portion of electric vehicle components that are manufactured domestically, and to increase the market share of U.S.-made vehicles, the industry could add about 150,000 jobs by the end of the decade.“That’s the payoff — making the sector a center of good jobs again,” said Josh Bivens, an economist who is one of the report’s authors. “If we don’t try to react proactively with good policy we’ll see continued downward pressure on the number of good jobs.”Looming over the transition to electric vehicles is the fact that they have substantially fewer moving parts than gasoline-powered ones and require less labor to manufacture — about 30 percent less, according to figures from Ford Motor. The vehicle-manufacturing industry employs a little under one million people domestically, including suppliers.The cab of an all-electric Ford F-150 Lightning truck prototype. Ford and General Motors have said they are taking on a greater role in battery production.Rebecca Cook/ReutersThere are essentially two ways to offset the projected job losses: to increase the proportion of each vehicle’s parts that are made domestically — specifically in the powertrain, the key parts and systems that power a car — and to sell more vehicles assembled in the United States.Mr. Bivens and his co-author, James Barrett, an economic consultant, examine the effects of doing both. They note that roughly three-quarters of the parts in the powertrain for a U.S.-made gasoline vehicle are produced domestically, versus less than half of the parts in the powertrain of a U.S.-made electric vehicle.Raising the proportion of domestic content in electric vehicles so that it mirrors gas-powered ones could save tens of thousands of jobs a year, they estimate — potentially more than half the likely job losses that would arise without additional government action.But to transform likely job deficits into job gains, Mr. Barrett and Mr. Bivens find, it is necessary to increase the market share of vehicles made in the United States. According to the study, the percentage of vehicles sold in the United States that are made domestically has hovered around 50 percent over the past decade. If it were to rise to 60 percent, the authors conclude, the industry could gain over 100,000 jobs in 2030.If market share were instead to drop to 40 percent by the end of the decade and there were no increase in the domestic content of electric vehicle powertrains, the industry could lose more than 200,000 jobs, the report finds.Under the Democratic plan circulating in Congress, a current $7,500 tax credit for the purchase of a new electric vehicle would rise as high as $12,500. An extra $4,500 would apply to vehicles assembled at unionized factories in the United States. Consumers would receive the final $500 if their vehicle had a U.S.-made battery. The details could change in the face of opposition from automakers with nonunion U.S. plants.Democrats are also discussing subsidies to encourage manufacturers to set up new factories or upgrade old ones.Sam Abuelsamid, an auto industry analyst at Guidehouse Insights, said that domestic automakers had an opportunity to increase market share as the industry electrifies and that an expanded consumer tax credit would help.“They are targeting a lot of the market segments that are particularly strong-selling — crossovers, pickups,” Mr. Abuelsamid said. “There is definitely potential for them to claw back some market share from Asian brands.”Still, he warned, the window for seizing the opportunity could be relatively narrow as Asian automakers like Toyota and Honda, which have lagged somewhat in their electric vehicle planning, introduce more electric offerings.The question of whether manufacturers will locate production of electric vehicles and their components in the United States as demand grows, and the extent to which government subsidies can help ensure that this happens, has been a subject of debate in recent years.Dale Hall, a researcher at the International Council on Clean Transportation, a research organization, said in an interview that electric vehicles tend to be manufactured in the region where they are sold, both to save on transportation costs and to be more responsive to consumers’ needs. 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    Democrats Roll Out $3.5 Trillion Budget to Fulfill Biden’s Broad Agenda

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    “We’re going to get a lot done,” President Biden said, as Senate Democrats began drafting the details on a social and environmental bill that could yield transformative change.WASHINGTON — President Biden and congressional Democrats vowed on Wednesday to push through a $3.5 trillion budget blueprint to vastly expand social and environmental programs by extending the reach of education and health care, taxing the rich and tackling the warming of the planet.The legislation is still far from reality, but the details that top Democrats have coalesced around are far-reaching. Prekindergarten would be universal for all 3- and 4-year-olds, two years of community college would be free, utilities would be required to produce a set amount of clean energy, and prescription drug prices would be lowered. Medicare benefits would be expanded, and green cards would be extended to some undocumented immigrants.At a closed-door luncheon in the Capitol, Mr. Biden rallied Democrats and the independents aligned with them to embrace the plan, which would require every single one of their votes to move forward over united Republican opposition. But crucial moderate lawmakers had yet to say whether they would accept the proposal, with a majority of policy details left to resolve.Mr. Biden’s message to the senators on Wednesday, said Senator Richard Blumenthal of Connecticut, was “be unified, strong, big and courageous.”Senate Democratic leaders have said they aim to pass both the budget blueprint and a narrower, bipartisan infrastructure plan that is still being written before the chamber leaves for the August recess — a complex and politically tricky task in a 50-50 Senate. The narrowly divided House would also have to pass the budget blueprint before both chambers begin tackling the detailed legislation.Speaker Nancy Pelosi, who must ultimately get the package through the House, embraced the deal, telling Democrats in a letter on Wednesday, “This budget agreement is a victory for the American people, making historic, once-in-a-generation progress for families across the nation.”The outline includes large swaths of Mr. Biden’s $4 trillion economic agenda. It wraps in every major category from his American Families Plan, including investments in child care, paid leave and education, and expanded tax credits that this week will begin providing a monthly check to most families with children.“I think we’re going to get a lot done,” Mr. Biden told reporters as he left his first in-person lunch with the Democratic caucus as president.Nodding to budget constraints, party leaders conceded that many of the programs included in their plan — including the tax credits — could be temporary, leaving a future Congress to decide whether to extend them further.The proposal also includes some measures that go beyond what Mr. Biden has called for, like expanding Medicare to cover dental, vision and hearing benefits. Democratic leaders left it to the Senate Finance Committee to decide whether to include reducing the eligibility age for Medicare to 60, a priority of Senator Bernie Sanders of Vermont, the Budget Committee chairman.The resolution would also create what would effectively be a tax on imports from countries with high levels of greenhouse gas emissions. That could violate Mr. Biden’s pledge not to raise taxes on Americans earning less than $400,000 a year if the tax is imposed on products that typical consumers buy, such as electronics from China.Democrats on Mr. Sanders’s committee must produce a budget resolution in the coming days that includes so-called reconciliation instructions to other Senate committees, which in turn will draft legislation detailing how the $3.5 trillion would be spent — and how taxes would be raised to pay for it.That would pave the way for Democrats to produce a reconciliation bill this fall that would be shielded from a filibuster, allowing them to circumvent Republican opposition but requiring all 50 of their members — and a majority in the narrowly divided House — to pass it.“In some cases, it doesn’t provide all the funding that I would like to do right now,” Mr. Sanders said. “But given the fact that we have 50 members, and that compromises have got to be made, I think this is a very, very significant step forward.”He added: “If you’re asking me at the end of the day, do I think we’re going to pass this? I do.”A neighborhood in Austin, Texas, where many homes have solar panels. The blueprint of the legislation includes clean energy provisions and other social programs.Tamir Kalifa for The New York TimesAt the private lunch, Senator Chuck Schumer of New York, the majority leader, outlined the proposal and the directives it would lay out.Democrats included the creation of a civilian climate corps to add jobs to address climate change and conservation, and to provide for child care, home care and housing investments. They are also expected to try to include a path to citizenship for some undocumented immigrants and address labor protections.Democrats would also extend expanded subsidies for Americans buying health insurance through the Affordable Care Act that were included in the broad pandemic aid law that Mr. Biden signed this year.Huge investments would go to renewable energy and a transformed electrical system to move the U.S. economy away from oil, natural gas and coal to wind, solar and other renewable sources. The budget blueprint is to include a clean energy standard, which would mandate the production of electricity driven by renewable sources and bolster tax incentives for the purchase of electric cars and trucks.To fully finance the bill, it is expected to include higher taxes on overseas corporate activities to alleviate incentives for sending profits overseas, higher capital gains rates for the wealthy, higher taxes on large inheritances and stronger tax law enforcement.Senator Ron Wyden of Oregon, the chairman of the Finance Committee, said on Wednesday that he was also preparing to overhaul a deduction for companies not organized as corporations, like many small businesses and law firms — created by the 2017 Republican tax law — in order to cut taxes from small businesses but raise additional revenues from wealthy business owners.Specific provisions will have to pass muster with the strict budgetary rules that govern the reconciliation process, which require that provisions affect spending and taxation, not just lay out new policies. The Senate parliamentarian could force Democrats to overhaul or outright jettison the clean energy standard, the provision that climate activists and many scientists most desire, as well as the immigration and labor provisions, among others.Moderate Democrats, who had balked at a progressive push to spend as much as $6 trillion on Mr. Biden’s entire economic agenda, largely declined to weigh in on the blueprint until they saw detailed legislation, saying they needed to evaluate more than an overall spending number.“We’ve got to get more meat on the bones for me,” Senator Jon Tester, Democrat of Montana, told reporters, though he added that he would ultimately vote for the budget blueprint. “I’ve got to get more information on what’s in it.”The size of the package could be shaped by the success or failure of the bipartisan infrastructure plan, which would devote nearly $600 billion in new spending to roads, bridges, tunnels, transit and broadband. The group of lawmakers negotiating that package has yet to release legislative text as they haggle over the details of how to structure and pay for the plan.“I want to be able to tell people in South Carolina: I’m for this, I’m not for that,” said Senator Lindsey Graham of South Carolina, the top Republican on the Senate Budget Committee.Stefani Reynolds for The New York TimesIf Republicans cannot deliver enough votes to move the package past a filibuster, Democrats could simply fold physical infrastructure spending into their reconciliation plan and take away any chance for Republicans to shape it, said Senator Rob Portman, Republican of Ohio and one of the negotiators of the bipartisan bill.“If we don’t pass infrastructure, they’re going to put even more infrastructure in than we have and worse policies,” said Mr. Portman, who fielded skepticism from his colleagues at a private Republican lunch on Tuesday. Some Republicans had hoped that a bipartisan accord on physical infrastructure projects would siphon momentum from a multitrillion-dollar reconciliation package. Instead, it appears very much on track, and it may intensify the pressure on Republicans to come to terms on a bipartisan package, even if they fiercely oppose the rest of the Democrats’ agenda.“I want to be able to tell people in South Carolina: I’m for this, I’m not for that,” said Senator Lindsey Graham of South Carolina, the top Republican on the Budget Committee and a peripheral presence in the bipartisan talks.He added that the lengthy floor debate over the blueprint would allow Republicans to “ferociously attack it, to have amendments that draw the distinctions between the parties, to scream to high heaven that this is not infrastructure.”Senator Joe Manchin III of West Virginia, a moderate Democrat, said he looked “forward to reviewing this agreement” but was also interested in how the programs would be financed.Sarahbeth Maney/The New York TimesSenator Joe Manchin III of West Virginia, the centrist Democrat whose support might be determinative, told reporters after lunch with the president that he had concerns about some of the climate language. But he did not rule out supporting the budget proposal or the subsequent package. Senator Kyrsten Sinema, Democrat of Arizona and another key moderate, also hung back on Wednesday.Still, the $3.5 trillion package had plenty in it to appeal to senior Democrats who were eager to use it to advance their longtime priorities. For Senator Patty Murray of Washington, the chairwoman of the Health, Education, Labor and Pensions Committee, it was an extension of a more generous child tax credit, as well as subsidies for child care, prekindergarten and paid family leave.For Mr. Sanders, it was the Medicare and climate provisions.“Finally, we are going to have America in the position of leading the world in combating climate change,” he said.Mr. Tester said the need for school construction was so high that trillions could go to that alone.“The plan is a strong first step,” said Senator Elizabeth Warren, Democrat of Massachusetts, adding that she was focused on funding universal child care. “We’re slicing up the money now to find the right ways to make that happen.”The budget measure is expected to include language prohibiting tax increases on small businesses, farms and people making less than $400,000, fulfilling a promise Mr. Biden has maintained throughout the negotiations. Asked on Wednesday whether the proposed carbon tariff would violate that pledge, Mr. Wyden replied, “We’ve not heard that argument.”Lisa Friedman More