US

Biden wants to give the IRS an extra $80BILLION to crack down on tax evasion

President Joe Biden is going to beef up the budget of the Internal Revenue Service to help the agency crack down on wealthy individuals and powerful corporations who try to evade his proposed new tax hikes.

Biden will give the IRS an extra $80 billion and more authority over the next 10 years, The New York Times reported, to help enforce the higher income tax on the rich and capital gains tax he’s proposed to pay for his $1.8 trillion American Families Plan.

The president plans to pay for his ‘human infrastructure’ bill by raising the top marginal income tax rate on wealthy Americans to 39.6 per cent – up from 37 per cent – and raising capital gains tax rates for those who earn more than $1 million a year. 

The new enforcement power to the tax collection agency will include new disclosure requirements for people who own businesses that are not organized as corporations and for other high worth individuals who could be hiding income from the government. 

Administration officials also believe cracking down on tax avoidance by corporations and the rich could raise at least $700 billion over the next 10 years.

The IRS estimates it only collects 84 per cent of the money its owned in taxes each year, which results in a loss of $406 billion per year. That amount is a combination of $458 billion not paid and $52 billion not collected from those who are delinquent, according to the watchdog group Committee for a Responsible Federal Budget.

Most of that tax gap comes from under reported personal income, underreported pass-through business income, small corporation income, and the self-employment payroll tax.   

President Joe Biden wants to give IRS an extra $80 billion to crack down on wealthy individuals and powerful corporations who try to evade his proposed new tax hikes

The additional funds to the IRS will help enforce the higher income tax and capital gains tax President Biden has proposed to pay for his $1.8 trillion American Families Plan

The additional funds to the IRS will help enforce the higher income tax and capital gains tax President Biden has proposed to pay for his $1.8 trillion American Families Plan

White House officials have emphasized Biden’s proposed tax hikes will only affect a small number of people and they portray it as a way to level the play field between ordinary tax-paying Americans and the wealthy who use sophisticated methods to avoid paying their faire share of taxes. 

Brian Deese, the director of the National Economic Council, emphasized about three-tenths of 1 per cent – or about 500,000 people – would be affect by Biden’s tax increases.

Joe Biden’s tax hikes targeting the rich: Who will have to pay

Capital gains tax on investment sales for those earning more than $1million a year:

Current law: 20%

Proposal: 39.6%

With an effective rate of 43.4% when the Medicare surcharge is added.

Investors currently pay 23.8% as the top capital gains rate along with the 3.8% net investment income tax, known as the Medicare surtax. 

Around 500,000 people in the US, or 0.32% of the population, have recorded a gross income of over $1million.

For those earning more than $1 million in high-tax states, the total rate will be even higher given the combined federal and state tax capital gains.

In New York it could be as high as 52.22% and for Californians it could be 56.7%

Wealthy residents pay Capital Gains on the growth in value of investments when they are sold. They are mainly placed on profitable stock trades and real estate deals. They can also apply to sales of collectible cars, art, businesses, gold.

Investors are taxed on the difference between what they paid for the asset and what they sold it for. 

Investments held for at least one year tops out at 20% and those held under a year are taxed the same as salaries and wages. An additional 3.8% tax applies to those earning at least $200,000.

The US rate ranks in the middle of countries around the world. 

Investors generally support lower capital gains tax because they say it rewards entrepreneurship and encourages people to sell what they own. 

Corporate taxes

Current top rate: 21%

Proposed top rate: 28% 

These hikes have already been proposed in the first part of his infrastructure plan. 

He is also targeting US firms’ profits overseas and companies who use offshore businesses. 

Biden has still vowed that no one earning under $400,000 a year will pay more taxes in his administration. 

‘This change will only apply to three tenths of a percent of taxpayers, which is not the top 1 percent, it’s not even the top one half of 1 percent. We’re talking about three tenths of a percent, that’s about 500,000 households in the country,’ he said Monday at the daily White House press briefing. ‘So, for the other 997 out of 1000 households in the country, or the other 150 million households in the country, this is not a change that will be relevant.’ 

The hikes would have top earners paying up to 43.4 per cent, when an existing investment surtax is included. For those earning more than $1 million a year in high-tax states like New York and California, their total rate could be above 50 per cent.  

California, New York, Minnesota, and Oregon would have the highest top capital gains rates of 56.7 percent, 54.3 percent, 53.3 percent, and 53.3 percent, respectively, according to analysis from the Tax Foundation

Roughly 75 percent of stock investors wouldn’t be subject to an increase in the capital gains tax rate due to the types of accounts they own, according to UBS.

The announcement is expected to come Wednesday night, when the president makes his first address to Congress, where he will outline his American Families Plan and how he’ll use tax hikes to help pay for the multi-trillion proposal. 

His latest plan to help the US economy recover from the coronavirus pandemic focuses on social issues – education, labor programs, universal pre-K, free college tuition for certain income levels, and other programs.

Currently, people earning more than $200,000 pay a capital gains rate of about 23.8%, including the 3.8% net investment tax which helps fund the Affordable Care Act. Under the new plan, wealthy Americans could face an overall federal capital gains tax rate of 43.4% including the Obamacare tax.

‘We need to do something about equalizing the taxation of work and wealth in this country,’ Deese noted. ‘And that’s why the reforms that the president will lay out are focused on this top sliver of people.’ 

Republicans have criticized the tax hike, charging it will cut down on investment and cause unemployment. 

One point of confusion is whether the tax hike would apply to households or individuals. Deese said ‘households,’ noting the tax raise affects the ‘top sliver of households.’ 

The issue of household versus individuals is of particular interest to high-income households in cities like New York and San Francisco, where the cost of living is higher than the rest of the country. For those earning more than $1 million a year in high-tax states like New York and California, their total rate could be above 50 per cent. 

Those areas are also mainly represented by Democrats, who would have to explain the tax hikes to their constituents. 

White House press secretary Jen Psaki declined to answer whether individuals or households would be impacted. 

‘I am not going to get into more specifics,’ she said, ‘but we’ve been quite careful about not getting head of the president.’

And she stood firm on Biden’s campaign pledge not to raise taxes on those earning more than $400,000 per year and noted: ‘He believes that the burden should be on the backs of corporations and high level income people.’

Brian Deese, the director of the National Economic Council, said tax hike on capital gains will only affect 500,000 people

White House press secretary Jen Psaki declined to answer whether individuals or households would be impacted by the change

Brian Deese, the director of the National Economic Council, said tax hike on capital gains will only affect 500,000 people while White House press secretary Jen Psaki declined to answer whether individuals or households would be impacted by the change

California, New York, Minnesota, and Oregon would have the highest top capital gains rates of 56.7 percent, 54.3 percent, 53.3 percent, and 53.3 percent, respectively, according to analysis from the Tax Foundation

California, New York, Minnesota, and Oregon would have the highest top capital gains rates of 56.7 percent, 54.3 percent, 53.3 percent, and 53.3 percent, respectively, according to analysis from the Tax Foundation

In his address to the Joint Session of Congress on Wednesday evening, Biden will tout his accomplishments in his first 100 days in office and expand his vision for the next stage of his presidency. 

The speech will be a fraction of its traditional size – only 200 people in the House chamber as opposed to the usual 1,600 due to coronavirus restrictions  – but will be large in scope. 

American Families Plan

American Families Plan may include the following items but White House aides stress it is subject to change: 

$300 billion in education funding, which includes funding to make two-year community colleges tuition-free

$225 billion in child-care funding

$225 billion for paid family and medical leave

$200 billion for prekindergarten instruction 

$200 billion to extend more enhanced Affordable Care Act subsidies

$400 billion to extend the child tax credit until 2025

– The Washington Post 

He’ll cover a range of topics – COVID-19, police reform, and immigration. But the main focus will be the next phase in his plan to help the US economy recover from the coronavirus pandemic – his $1.8 trillion families plan. 

‘He will lay out the specific details of the American Families Plan,’ Psaki said Monday. “He will also talk about a range of priorities that he has for the upcoming months of his presidency.’  

The American Families Plan remains a work in progress with some items becoming a point of contention among Democrats. 

Democratic leadership on Capitol Hill, for example, wants to include lowering the cost of prescription drugs, a move opposed by the pharmaceutical industry. The White House was looking to cut it but Speaker Nancy Pelosi is among those lobbying for it to stay in.

Deese refused to preview whether or not it would be in Biden’s speech.

‘Right now, I am not going to confirm whether or not that is in. I can say that the president has long focused on the issue of rising cost of prescription drugs for American consumers and American families,’ he said. ‘It’s something that he continues to focus on and prioritize but I’m going to let him speak to those issues in the speech.’

There is also an internecine battle over health care. Progressives want additional funds to expand Medicaid. Moderate in the Democratic Party want to expand the Affordable Care Act.  

Republicans are expected to oppose the entire package, which follows Biden’s $1.9 trillion COVID relief measure. 

Additionally Biden has a $2 trillion infrastructure package that is working its way through the legislative process. 

Republicans have already offered a scaled back counter proposal for a fourth of the cost and keeps the focus on traditional infrastructure items.  


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