How Biden's $2 trillion in tax increases target companies and the rich

Those with adjusted gross income of more than $10 million would face an additional 5% tax on top of the 37% marginal tax rate they already pay. Those making more than $25 million would face an extra 3% surtax.

The Biden administration estimates that these tax increases would hit the top .02% of taxpayers and raise $230 billion of tax revenue over a decade.

The plan also aims to ensure that people making more than $400,000 are not able to use loopholes to avoid paying a 3.8% Medicare tax. The White House estimates that provision alone will generate $250 billion in tax revenue over the next 10 years.

Making corporations pay more

Borrowing a page from his campaign playbook, Biden wants to impose a 15% minimum tax on profitable companies that have little to no federal tax liability. Many profitable companies are able to reduce or eliminate their tax liability through the use of tax credits, deductions and previous losses that can carry over. The new tax would apply to companies with more than $1 billion in so-called book income — profits that firms report to their shareholders but not to the IRS.

The plan is meant to ensure that the approximately 200 companies that pay no corporate income tax will have to pay some money to the federal government.

The White House estimates the provision, which was also included in a plan presented by Senate Democrats, will raise an additional $325 billion in tax revenue over a decade.

Chye-Ching Huang, executive director of the Tax Law Center at New York University, said Thursday that the proposal could mean that financial statements where book income is reported could become the new “locus for tax avoidance.”

A separate proposal would also enact a 1% surcharge on corporate stock buybacks. Buybacks have surged along with the stock market, with cash-rich firms like Apple, JPMorgan Chase and Exxon spending billions of dollars each year to buy back, then retire, shares in their own companies. That can help drive up the company’s stock price, enriching both shareholders and corporate executives whose compensation is often tied to their firm’s stock performance.

The provision is projected to raise $125 billion over 10 years.

Ending the tax race to the bottom

Biden’s framework would raise the tax that companies pay on foreign earnings to 15%, putting the United States in line with a global minimum tax that is being completed at the Group of 20 summit in Rome this week.

The Biden administration initially wanted to double the current rate to 21% from 10.5%. In settling on 15%, the U.S. rate would match what was agreed to by the 136 countries participating in the global deal and could blunt criticism that U.S. companies will face a competitive disadvantage.

The global agreement is meant to end corporate tax havens and stop what Treasury Secretary Janet Yellen describes as the “race to the bottom” of declining corporate tax rates around the world.

To deter companies from finding ways to avoid the tax, the plan would impose a penalty rate on foreign corporations based in countries that are not part of the agreement.

The Biden administration projects the international plans would raise $350 billion over a decade.

Narrowing the tax gap

White House and Treasury Department officials have spent months pushing a proposal to narrow the $7 trillion gap in taxes that are owed by individuals and businesses but not collected. The administration initially wanted to invest $80 billion in additional enforcement staffing at the IRS and require banks to hand over more information about the finances of their customers.

Under the new proposal, the IRS would get more money to ramp up audits of people making more than $400,000. However, the new bank reporting proposal — which the Treasury has called critical to its ability to hunt down hidden revenue — was conspicuously absent. A lobbying campaign from banks prompted huge blowback from lawmakers, including Sen. Joe Manchin, D-W.Va., whose vote is critical to passing the overall package.

Treasury officials and a group of Senate Democrats are continuing to negotiate with Manchin on narrowing the proposal in a way that he could support.

As it stands, the plan to bolster IRS enforcement is projected to raise $400 billion over a decade, down from the $700 billion in the original proposal.