Corporate Tax

Debate about who truly pays corporate taxes continues

House Democrats have announced their plan to collect $ 2.1 trillion in taxes to partially offset the cost of their $ 3.5 trillion “human infrastructure” plan.

The plan is expected to increase the corporate tax rate. The new rate would be 26.5% instead of the current rate of 21%. This is less than the 28% rate favored by President Biden, but still lower than the 35% rate that prevailed in 2017.

The impetus behind the 21 percent rate was to make the US competitive with the rest of the world. US firms fled the country through “inversions” or mergers with a foreign company. In both cases, the company “emigrated” and relocated its headquarters, workplaces and other functions.

The lower rate also brought money back to the US that had been stowed overseas. The tax law allowed the US not to tax foreign profits unless they were brought home. The 35% tax was a big reason to leave money abroad. At 21%, repatriation became much more attractive.

Possibly in order to abolish the 26.5% rate as a renewed temptation, the minimum tax on foreign income would be increased from 10.5% to 16.6%.

There will be the usual debate about who actually pays corporate taxes. Companies are run-through companies. Taxes are borne by a combination of customers through higher prices, workers through lower wages, and shareholders through lower profits. To the extent that customers and workers pay, it goes against the promise that no one making less than $ 400,000 a year will be affected by tax increases.

The top tax rate on capital gains would increase from 20% to 25%. This is much less than President Biden’s suggested rate of 39.6%.

Individual taxes will rise by raising the top rate from 37% to 39.6%. Again, this is a return to pre-2017 prices. The lower rate in 2017 should offset the loss of full deductibility for individual deductions such as state and local taxes.

To the horror of lawmakers, where state and local taxes are a big issue, the so-called “SALT” deduction has not been restored. With the thinnest democratic majorities, it will be interesting to see how this is resolved.

There is an additional 3% surcharge for individuals with incomes greater than $ 5 million. This was not part of Biden’s proposal.

While the legislation is aimed at income, it is rarely aimed at wealth. There is no wealth tax. As long as the assets are not sold, there is no capital appreciation tax. There is no change in the increase in the cost base in the event of death.

Billionaires like Warren Buffett and Jeff Bezos can pay themselves tiny salaries and watch the value of their stocks soar tax-free. No capital gains tax is payable in the event of death.

The big change related to wealth was to roll back the inheritance tax exemption from about $ 12 million per person to now $ 6 million per person, instead of 2025.

Jeffrey Scharf is the founder of Act Two Investors LLC, a registered investment advisor. Contact him at

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