Advocacy News – September 21, 2021
On Monday, September 13, 2021, the U.S. House of Representatives Ways and Means Committee announced a budget proposal outlining a plethora of proposed tax changes, including tax hikes for U.S. corporations and high-income earners. The Michigan Chamber of Commerce is working in tandem with the U.S. Chamber to oppose tax increases and damaging investment reforms that weaken our economy and the businesses that build it. Below are some of the more substantial provisions that would impose a higher tax on businesses and individuals.
To view a comparison between the proposal before the House Ways and Means Committee and the May 2021 revenue proposal suggested by the U.S. Department of Treasury (i.e. the “Green Book,”) click here.
Businesses:
The budget proposal constructed by the Democratic-led U.S. Ways and Means committee eliminates the current flat corporate tax rate of 21 percent established by former President Donald Trump in 2017 and subsequently implements a graduated income tax schedule. The suggested rate would impose an 18 percent corporate tax on the first $400,000 of income, 21 percent for corporations bringing in between $400,000 and $5 million and 26.5 percent for corporations receiving over $5 million. Should this proposal remain unchanged through the legislative process, the graduated tax schedule will take effect for taxable years after December 31, 2021.
For more information regarding tax provisions that affect foreign business, click here.
Individuals:
For taxable years after December 31, 2021, the country’s top earners can expect to see an increase in their income tax rate from 37 to 39.6 percent. In addition, the number of filers considered to be a “high-income earner” will expand. The new top marginal income tax bracket will include those married filing jointly with a taxable income of over $450,000, to heads of household with $425,000 or greater of taxable income, to married individuals filing separately with a taxable income of over $225,000 and to single filers with a taxable income of over $400,000. Estates and trusts that will be subjected to the 39.6 percent tax increase are those with a taxable income of over $12,500. Additionally, those considered to be a high-income filer will be subjected to a capital gains tax increase from 20 to 25 percent. The five percent jump applies to taxable years ending after September 13, 2021. As the United States already has the highest capital gains rate in the world, the U.S. Chamber of Commerce contends this increase will significantly harm competitiveness and job creation.
The House proposal also pushes for limitations to Section 199A of the Internal Revenue Code, commonly referred to as the Qualified Business Income (QBI) deduction. The QBI deduction had been implemented in 2017 under the Trump Administration’s Tax Cuts and Jobs Act (TCJA) and aimed to provide relief specifically to pass-through entities such as sole proprietorships, S Corporations, partnerships, as well as certain estates and trusts. Under the proposed language within the Federal Ways and Means committee, beginning in taxable years after December 31, 2021, the maximum allowable deduction will be $500,000 for those filing jointly, $400,000 for an individual return and $10,000 for eligible trusts and estates.
Additional provisions that result in a tax increase for the top marginal tax bracket are as follows:
- Permanently disallow excess business losses for non-corporate taxpayers retroactively beginning December 31, 2020.
- Implementation of a three percent tax on a taxpayer’s adjusted gross income of $5,000,000 ($2,500,000 if married filing separately).
- Net investment income tax will expand to investment income that is a result of “ordinary course of trade or business” for single filers with a taxable income of over $400,000 and married individuals filing jointly with an income of $500,000.
For more information on the U.S. House Ways and Means budget proposal, please contact Leah Robinson at lrobinson@michamber.com.