Tax legislation enacted before this Congress ends should prioritize proven policies that help workers and children over policies that cut taxes for businesses and already wealthy individuals. It’s unclear at this time if lawmakers will do so, or if they will enact some form of tax legislation later this year.
Below are the key tax issues lawmakers are discussing and links to more detailed explanations from ITEP for each issue.
1. Extended corporate tax cuts vs. lifting children out of poverty
Many lawmakers want to extend certain corporate tax credits through the end of the year, but this is misguided for several reasons.
▶ The corporate lobbyists who pushed the Trump tax bill in 2017 and the congressional Republicans who drafted it are now actively working to repeal the cost-laden provisions of the law that they claimed would lower the cost of tax cuts. There is
▶ They push to postpone or repeal provisions containing these costs and extend the much more generous corporate tax provisions that were previously in effect. This effectively increases the cost of Trump tax cuts by hundreds of billions of dollars.
▶ To make matters worse, many legislators are trying to extend these corporate tax credits without extending the one tax provision that has proven to help families and children — the recent child tax credit. expansion.
▶ Please check this out for details.
2. Problems with specific corporate tax reduction “extenders”
Three corporate tax cut “extenders” are currently getting the most attention in Congress, each raising additional concerns.
Research funding – The tax cut is supposed to be an incentive for companies to conduct research that benefits society, but lawmakers have not asked what it has achieved.
▶ Many of the companies lobbying for this tax cut pay very little in taxes. For example, Netflix has paid federal income tax on less than 1% of its reported earnings over the past four years.
▶ Some activities funded by this tax cut do not meet the definition of “research” that most people understand. Companies asking Congress to extend the tax cut from breweries and companies that develop frozen and packaged foods to include sausage businesses and companies that develop electronic games for casinos. Before you do, you should ask what kind of “research” this tax cut supports.
▶ Please check this out for details.
bonus depreciation – This policy allows companies to deduct the cost of equipment in the year of purchase, rather than deducting costs over several years until the equipment wears out. This extreme version of accelerated depreciation allows companies to deduct the cost of equipment faster than it wears out, causing some problems.
▶ Accelerating depreciation has led many large corporations (Verizon, FedEx, Walt Disney, General Motors, Bank of America Amazon, etc.) to avoid significant taxes, especially in the past few years when this bonus depreciation provision was implemented. is ready.
▶ Bonus depreciation should drive investment, but research shows that business leaders pay little attention to depreciation tax deductions when making investment decisions.
▶ Please check this out for details.
Relaxation of deduction limits for interest payments – The proposal overturns hard limits on the deductions companies can make on debt interest payments and extends the more lenient rules that were in effect until this year.
▶ Absent a hard limit, the tax deduction for interest payments would result in more favorable tax laws for companies that borrow money than for companies that sell shares to raise money from investors.
▶ It provides unfair subsidies to private equity firms that buy companies and pile up debt, often driving them into bankruptcy.
▶ In recent years, this practice has led to the demise of Toys R Us, Payless, and other well-established companies.
▶ Please check this out for details.
3. Bipartisan retirement tax laws primarily benefit the wealthy
Two bipartisan retirement bills, the EARN Act and the SECURE Act 2.0, have passed Congress and offer modest help to those who really need help saving, but they don’t already guarantee a safe retirement. comfortable individuals with much greater benefits. Many observers believe these bills are the tax laws most likely to be enacted by the end of the year.
▶ Both bills would allow people to keep their savings in tax-deductible accounts for the long term without having to start withdrawing until age 75 (72 under current law). The tax breaks that came with these accounts were intended to help people save for a safe retirement, but those who don’t need to tap into their retirement savings before age 75 are considerably wealthier. , you can retire comfortably for any reason. What tax incentives are available?
▶ Similarly, both bills would allow people in their early 60s to make more “catch-up” contributions to their tax-deductible retirement accounts, compared to the current maximum of $6,500. doing. A person with $10,000 of her surplus income to put into her retirement savings account is by definition wealthy and likely to retire comfortably without such tax breaks.
▶ This law does not address one of the most pressing issues regarding tax cuts on retirement savings: Like Peter Thiel’s $5 billion Roth IRA, very wealthy individuals circumvent or circumvent statutory limits and pay taxes. The ability to deposit large sums of money in retirement savings accounts protected by .
▶ Please check this out for details.
4. What Congress Should Put in End-of-Year Tax Bills: Expanding the Child Tax Credit
An expanded child tax credit enacted by Congress in 2021 lifted 2.1 million children out of poverty, but expired at the end of the year. While many Democrats have proposed extending that extension, some Republicans, led by Senator Mitt Romney, have offered competing proposals to extend the credit.
▶ Congressional Democrats’ approach would help more families and children, while Senator Romney’s approach would worsen a quarter of children and help half of low-income children.
▶ Neither of these proposals are likely to be fully enacted, but Congress could adopt some elements of either proposal and include them in year-end tax legislation.
▶ The biggest problem with CTC today is the limited refundable portion of the credit. This would prevent nearly all children in the poorest fifth of Americans from accessing full credit. Congressional Democrats’ approach provides full credit to all these children, while Romney’s approach continues to deny full credit to more than 40% of these low-income children.
▶ Please check this out for details.
