Tax Update Blog

House tax-writers bicker over whether tax code is progressive enough

May 12, 2021 | Blog
By Jay Heflin

Lawmakers on the House Ways and Means Select Revenue Measures Subcommittee met for a hearing on Wednesday to debate whether the federal tax system should be more progressive.  

The argument fell largely along party lines, with Republicans contending that the tax code is progressive enough while Democrats proclaimed that more is needed.  

“Our progressive tax system is supposed to counterbalance economic inequality, so that those who have been more fortunate pay a little bit more toward the common good.  Unfortunately, the tax system we have hasn’t always lived up to that ideal,” said Rep. Mike Thompson (D-Calif.), who chairs the Subcommittee.

Several Republicans on the Subcommittee responded to Thompson’s point by highlighting a Joint Committee on Taxation report, which was created for today’s hearing and showed that wealthier taxpayers paid a higher tax rate than lower income taxpayers in 2018.

Page 91 of the report shows taxpayers with adjusted gross incomes of at least $1 million incurred, on average, a 26.30% individual income tax rate. Lower income earners paid lower income rates, with AGIs of $50,000 or less experiencing a negative income tax rate.

Wealthier taxpayers also paid higher rates on taxes when personal income, payroll, excise and corporate income were combined. The average tax rate for AGIs $1,000,000 and above was 31.50% in 2018, versus an average rate of 9.60% for AGIs between $40,000 and $50,000.

Today’s hearing did not appear to change any lawmakers’ minds regarding the progressivity of the tax code. But it did set the stage for a full committee hearing on May 19th, which is titled “Leveraging the Tax Code for Infrastructure Investment.”

During the upcoming hearing, Chairman Richard Neal (D-Mass.) is expected to begin public discussions on how to pay for President Joe Biden’s infrastructure proposal, the American Jobs Plan.

The White House projects that the Plan will cost $2.5 trillion over eight years and the administration says those costs will be paid over the next 15 years by increasing corporate taxes and the other tax changes in the new plan.

The proposed tax increases are:

  • Increase the corporate income tax rate from 21% to 28%.
  • Impose a 21% global minimum tax on U.S. corporations, which would be calculated on a country-by-country basis (the Biden plan also gives a ‘tip of the hat’ to the OECD-led effort to adopt a global minimum tax).
  • Eliminate the rule allowing U.S. companies to pay zero taxes on the first 10% of profit when they locate investments in foreign countries. 
  • Repeal the Foreign Derived Intangible Income (FDII) deduction.
  • Create a 15% minimum tax on book income for the largest corporations (not defined)
  • Deny company expense deductions for moving jobs offshore.
  • Impose more restrictions on corporate inversions.
  • Eliminate certain tax preferences for fossil fuels.

The White House has also stated these proposalswill be paired with a broader enforcement initiative to be announced in the coming weeks that will address tax evasion among corporations and high-income Americans” and possible additional tax code modifications. And the President “will be putting forward additional ideas in the coming weeks for reforming our tax code so that it rewards work and not wealth and makes sure the highest income individuals pay their fair share.”

While congressional efforts have begun on President Biden’s plans, final legislation is not expected until at least mid-summer, at the earliest.


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