Revised Build Back Better Plan Would Raise Taxes By $1.5 Trillion

Last Thursday, October 28, President Joe Biden released the broad framework of a revised Build Back Better budget reconciliation. As readers are aware, Democrats’ previous budget reconciliation called for $3.5 trillion in new spending and $2 trillion in new taxes. The new outline calls for $1.85 trillion and new taxes on both large and small businesses.

Democrats in the U.S. House of Representatives followed up the president’s announcement by releasing legislative text of, and a Budget Committee report for, the social spending plan.

As Connecting the Dots reported last week, Democratic leaders did abandon plans to raise both corporate and personal income tax rates. Still, the new framework would impose roughly $1.5 trillion in new taxes. That number is down from about $2 trillion in the previous iteration of the Build Back Better framework. As the National Association of Manufacturers has explained, the changes would impact corporations, businesses with international operations, and pass-throughs. For corporations, the outline calls for:

• Creating a “book tax,” or new 15 percent corporate alternative minimum tax in the form of a tax on financial statement income;
• Placing new limitations on companies’ ability to deduct interest on business loans;
• Imposing a new excise tax on stock buybacks; and
• Implementing a higher global minimum tax that would be more complex and that would subject more foreign income to the tax.

For pass-through entities, the outline calls for several new surtaxes, including:

• A 3.8 percent net investment income tax applied to business income greater than $400,000 (single) or $500,000 (married);
• A five percent surtax on individuals with adjusted gross incomes (AGIs) totaling more than $10 million; and
• An additional three percent surtax on AGIs totaling more than $25 million.

According to the nonpartisan, nonprofit Tax Foundation  the changes for pass-through entities would raise the United States’ average top tax rate on personal income to 57.4 percent, or the highest rate for countries in the Organization for Economic Cooperation and Development (OECD).

As the S-Corp Association explained, under this legislation many family-owned businesses would face a marginal rate of 48.8 percent, while public C corporations would have a marginal rate of about 21 percent. Read more from the S-Corp Association here.

The legislation also would provide nearly $45 billion in additional enforcement funding for the Internal Revenue Service, which bill sponsors said could not be used to increase taxes on taxpayers with incomes of less than $400,000.

The framework also calls for tightening labor and employment regulations and creates punitive financial penalties of up to $50,000 for employers who violate the National Labor Relations Act. The fines would increase to $100,000 for certain violations when the employer in question committed a similar violation within the previous five years. When determining the fines, the National Labor Relations Board would be required to consider: the gravity of the actions of the employer, the employer’s size and history of unfair labor practices, and the “public interest.”

Additionally, penalties could be assessed for company directors and officers if they:

• Directed or committed the violation;
• Had established a policy that led to the violation; or
• Had actual or constructive knowledge of and the authority to prevent the violation and failed to do so.

The legislation also outlines several provisions related to energy and environmental policy, including $555 billion for climate-related provisions and $320 billion in expanded tax credits for utility-scale and residential renewable energy, transmission, electric vehicles, and clean energy manufacturing.

The newest version of the Build Back Better plan did not include the Clean Electricity Performance Program, which MSCI opposed and which Connecting the Dots discussed here.