Democrats' $1.75 trillion Build Back Better (BBB) Act could soon become law — bringing a host of tax reforms with it.
The massive social safety net expansion is currently in the Senate, where it is expected to receive revisions before potentially being sent to President Biden's desk to be signed into law. It includes provisions on areas ranging from universal pre-K to bolstering of the Affordable Care Act, and its tax reforms are designed to help finance the bill.
From extra taxes on adjusted gross income to higher limits on SALT deductions, here's who would be affected by the proposed tax changes in the BBB plan.
The proposed tax changes would primarily impact very wealthy Americans. Currently, the country has a 37% tax on adjusted gross income (AGI) for people making at least $10 million a year. The BBB adds a surtax of 5%, and an additional 3% for people making more than $25 million.
The surtax would raise an estimated $230 billion over the next decade. Including state and local taxes, the BBB could give some of the country's highest earners a sizable tax bill.
"For somebody with AGI of $25 million or more, we're looking at an over 50% tax rate," says Bill Kambas, regional division leader of the U.S. private client and tax team at the law firm Withers.
The BBB also limits contributions to IRA accounts — and increases the required minimum distribution from those accounts — once their balances hit $10 million.
At the moment, the package also includes a temporary increase on the federal deduction for state and local taxes, known as SALT — raising the limit to $80,000, up from $10,000. Representatives from high-tax states like New York and New Jersey have praised the inclusion, saying it helps residents avoid being double-taxed, but critics have framed it as a tax cut for the wealthy.
The provision is likely to change in the Senate, CNBC reports, where top Democrats are already exploring other forms of SALT deduction relief.
For years, politicians have accused large and profitable corporations of not paying their fair share of taxes. Under the BBB, companies would be subject to a minimum tax of 15% if they report more than $1 billion in annual profits to their shareholders for three consecutive years.
Companies with a large international footprint, meanwhile, would have their foreign earnings taxed at a rate of 15%, an increase from the current 10.5% rate.
This tax would apply to about 200 American companies, lawmakers said last month.
"The most profitable corporations in the country are often the worst offenders when it comes to paying their fair share," Senate Finance Committee Chair Ron Wyden, D-Ore., said in a statement last month. "Year after year, they report record profits to shareholders and pay little to no taxes. Our proposal would tackle the most egregious corporate tax dodging by ensuring the biggest companies pay a minimum tax."
Under the BBB, the country's popular enhanced child tax credit (CTC) would be extended for an additional year, through 2022. In July, the credit was increased to as much as $3,000 per child ages 6 to 17, and $3,600 per child under age 6.
The credit would remain fully refundable, meaning families wouldn't need any earned income to receive the money. While most Democrats want to pass the bill's current CTC provision, Sen. Joe Manchin, D-W.V., has floated adding a work requirement to the benefit, which would limit the number of families that receive it.
The country's earned income tax credit would also be extended through 2022, a priority for House Democrats.
The bill is now in the Senate's hands, where it is likely to be revised before being signed into law. Democrats need all 50 of their senators to vote for the bill, as Republican senators have voiced unanimous opposition to the BBB.