NTA Update on the 2020 and 2021 Filing Season Challenges
Employer and Self-Employed Repayment of Deferred Payroll Taxes

Potential Revenue Raisers in the Reconciliation Bill

On Sept. 15, the House Ways and Means Committee (HWM) approved a proposal to increase taxes by $2 trillion over 10 years to fund the broader budget reconciliation bill proposed by Democrats. Because it is a reconciliation bill, it requires only a simple majority to become law and the Democrats have a slight majority in both chambers. However, at this point, it has literally no support among the Republicans and the Democratic majority is so minimal, passage of the reconciliation bill is in some doubt as the legislative process unfolds.

That said, being aware of these proposed tax increases is particularly important given the concerns of both parties for the need to fund the government to avoid a shutdown and to address the government’s significant deficit.

The following is a brief description of the HWM tax proposal (not all inclusive):

  • Raise the top marginal tax rates:
    • Corporations – 26.5%
    • Individuals – 39.6% (plus a 3.8% surtax)
    • Capital gains – 25% (plus a 3.8% surtax)
    • Expand the 3.8% tax on net investment income
  • Limit the interest deduction
  • Repeal the exclusion of gains from disposition of qualified small businesses
  • Reduce the estate and gift tax exclusion by one half the current amounts
  • Various changes to the international tax rules: GILTI, FDII and BEAT
  • Limit the Section 199A passthrough 20% deduction for owners of sole proprietorships, S corporations and partnerships, to $400,000 for single and $500,000 for married filing joint

Generally, the HWM proposal would have these tax increases effective for tax years beginning in 2022. However, the bill currently lists the capital gains’ higher rate retroactive to Sept. 13, 2021, with transition relief for sales subject to a written binding contract.

The proposal does not include relief from the $10,000 cap on deductions for state and local taxes (SALT), although SALT relief negotiations continue. It does not include repeal of oil and gas tax incentives. Also, a controversial proposal was dropped that would require a new financial reporting framework for individual and business accounts with flows of more than $600.

This tax measure will be combined with spending bills reported out of other House committees for an entire reconciliation package on the House floor as early as next week.

Get your popcorn ready! No one can predict how pending legislation will shape year-end tax planning.

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