Senate Majority Leader Chuck Schumer and West Virginia Senator Joe Manchin released the outline of their agreement to raise an estimated $739 billion, with the revenues going to fund climate and health initiatives, as well as to reduce the budget deficit. While the proposed deal would increase taxes, it does not approach the scope or magnitude of President Biden’s proposals or the House bill passed in 2021. It leaves in place a significant portion of former President Trump’s 2017 tax-cut package, including the 21% corporate rate.
The proposed changes include:
- 15% minimum corporate income tax based on book income.
- $80 billion allocated to IRS to increase audit enforcement and modernization.
- Increase in tax rate on carried interest income to ordinary rates.
- $4,000 tax credits for lower & middle income buyers for purchase of used electric vehicles, & up to $7,500 tax credit for new vehicles.
It remains unclear whether the deal will be backed by the full Democratic caucus in the 50-50 Senate. Sen. Kyrsten Sinema (D-Ariz.) has opposed changing the rules on carried interests in the past. The proposal would also need to pass the House, where a coalition from high state income tax states were pushing for relief from the limitation on the ability to deduct state and local income taxes (i.e., the SALT limitation). Democrats are attempting to vote on the bill, which only needs a simple majority to pass under reconciliation rules, before the August recess starts.