US House Democrats set to propose raised corporate tax rate of 26.5%

[WASHINGTON] House Democrats are set to propose raising the corporate tax rate to 26.5 per cent, people familiar with the matter said, among other plans that fall short of President Joe Biden's ambitions in a bid to help improve chances of passing a major social-spending package.

Democrats on the House Ways and Means Committee plan to put forward an increase in the business rate that's currently 21 per cent, offering less than the 28 per cent Mr Biden sought, the people said on condition of anonymity because the measures aren't public yet.

The top rate on capital gains would rise from 20 per cent to 25 per cent, instead of the 39.6 per cent Mr Biden proposed that would have been equal to a new top rate on regular income, the people said.

While the numbers are still subject to change before the proposal is officially released, such scaled-back plans would amount to an acknowledgment that even higher rates would have a tough time getting through Congress after some moderate Democrats expressed objections.

With thin majorities in both chambers, Democrats can afford just three defections in the House and none in the Senate as they use a process called budget reconciliation that allows them to bypass Republicans.

Committee Chairman Richard Neal didn't respond to a request for comment on Sunday. The panel is set to debate the tax portions of the bill on Tuesday and Wednesday.

Earlier Sunday, West Virginia Senator Joe Manchin, a moderate Democrat whose vote is crucial in the evenly split upper chamber, renewed his objections to the US$3.5 trillion tax-and-spending reconciliation plan. He said he can't support the price tag, doesn't see the urgency and is concerned about inflation and the impact of higher corporate taxes on US competitiveness.

Mr Manchin, speaking on CNN's State of the Union, floated a roughly US$1.5 trillion headline number for the package.

SAFETY NET

The Ways and Means panel and others in the House have already passed or have introduced major spending portions of the Democrats' plan to remake the US safety net, including a multi-year extension of an expanded child tax credit, paid family medical leave, universal pre-K and two free years of community college.

Ways and Means Democrats are expected to propose raising the top individual income tax rate to 39.6 per cent, as sought by Mr Biden, the people said. The Democrats would also propose a 3 per cent surtax on individuals with adjusted gross income of over US$5 million, a proposal not included in Mr Biden's plans released earlier this year.

Other proposals may fall short of what Mr Biden wants.

One change being contemplated is increasing the holding period for carried interest from three to five years, the people said, which would weaken a tax break rather than eliminating it entirely.

The carried interest tax break lets some private equity and hedge fund managers pay lower taxes on their pay. The 2017 Republican tax law required investment funds to hold their assets for more than three years instead of one year.

Senate Democrats have already been planning for the possibility of scaling back some of Mr Biden's proposals by focusing revenue-raising efforts more toward businesses than individuals.

On Friday, Senate Finance Committee Chairman Ron Wyden introduced two new proposals likely to be included in the Senate's overarching bill later this month: an overhaul of tax treatment for business partnerships and a 2 per cent excise tax on stock buybacks that was co-sponsored by Senate Banking Committee Chairman Sherrod Brown of Ohio.

Such proposals are seen as less politically risky than the 28 per cent corporate income tax rate the White House wants, since multiple Democratic senators have said they prefer a corporate rate closer to 25 per cent, while generating other revenue to make up the difference.

REUTERS