Thread by @ChuckCBPP

Thread: The new #BuildBackBetter framework legislation is paid for with a package of revenue offsets that:
1.Require higher-income people to pay a fairer amount of tax;
2.Reduce unwarranted tax advantages of profitable corporations (eg tax havens);
3.Reduce the “tax gap”

In sum, the Administration reports that the three revenue buckets raise $1.85 trillion over ten years: $650 B from high-income individuals, $800 B from large multinationals, and $400 B from reducing the tax gap. A solid package to pay for critical investments.

Let’s take each “bucket” in turn below.

The richest people in the country enjoy two main tax advantages: much of their income is not taxed annually and, when their income is taxed, it often enjoys special tax rates or other discounts.

To help address this, #BuildBackBetter (BBB) does two things: first, it adds a surtax on the gross incomes (i.e., a broad base) of very high-income people: 5% on incomes > $10m & 8% on incomes > $25m.

As we emphasized throughout the BBB debate, such a surtax is an excellent deal closer: it applies to a broad base, raises substantial progressive revenue & is easy for taxpayers to understand.

Second, BBB closes a major loophole in the 3.8% Medicare (& NIIT) tax on high earners, certain pass-throughs & capital income, which helped pay for the ACA. By closing the loophole, certain high-income owners of S Corps and partnerships can no longer avoid the tax.

Third, the package would also extend the limitation on the losses that high-income pass-through business owners can deduct from their non-business income, such as capital gains or a spouse’s salary.

While the high-income tax package includes several sound policies, it doesn’t address head-on the problem that the richest people in the country often pay little or no income tax. I made the case for a billionaires tax here:

https://twitter.com/ChuckCBPP/status/1452651048812924937

Turning to corp tax provisions. Since taking office w/tremendous success, Secretary Yellen has secured a global agreement on taxing profits in tax havens. BBB raises the U.S. min. tax rate (or GILTI) on offshore profits to align w/the agreement & lead the world in implementation

Beyond increasing the GILTI rate to 15 percent, BBB makes several other critical international tax reforms. Most important: the GILTI tax would now be assessed on a country-by-country basis to prevent gaming.

Corporations keep 2 sets of books: 1 for shareholders & 1 for the IRS. The BBB adds a min tax of 15% on (modified) book income, ie the income that is reported to shareholders. The new min tax on book income of the largest multinationals is designed to backstop the corporate tax.

Turning to stock buybacks. Corporations have 2 ways to distribute profits to shareholders: issuing dividends or buying back their own shares, which raises the value of the stock people continue to hold.

The tax treatment is very different: dividends are broadly taxed, while buybacks mostly result in untaxed, unrealized capital gains (& many shareholders, like foreign shareholders, are exempt from capital gains tax anyway).

BBB corrects this tax policy mismatch on corporate profit distributions to shareholders by requiring that corporations pay a 1% excise tax when they buy back their shares, which effectively taxes buybacks more like dividends.

This paper discusses it and links to important work on this topic by @DanielJHemel and Gregg Polsky
cbpp.org/research/feder…

Finally, the tax gap – the difference between the amount of taxes legally owed and the amount of taxes collected, which amounts to about $600B a year.

To address the tax gap, President Biden proposed a comprehensive plan to reduce the tax gap. It had three pillars: people (ie rebuild decimated IRS audit staff), systems (upgrade IRS’ outdated computers/software), information reporting (which is essential for compliance)

#BuildBackBetter includes about $80 billion in new - mandatory -- funding for the IRS to rebuild the audit staff and upgrade outdated computer systems – a major and essential achievement.

Because of the shameful misinformation campaign the banking industry mounted, siding with tax cheats over honest taxpayers, as of now, the information reporting requirement has been removed from the bill.

Until the final pen is put down, policymakers should try to salvage some progress on providing the IRS with additional third-party information, keeping in mind that < half of some types of income goes unreported & that > info is essential
cbpp.org/research/feder…

For more on the overall #BuildBackBetter framework, see @SharonParrott’s statement, here: cbpp.org/press/statemen…