Last-minute BBB scramble continues. With many spending issues in the shrinking Build Back Better bill seemingly resolved among Democrats, battle lines are forming around a few key tax disputes: For how long will Congress extend the expanded Child Tax Credit (CTC)? How will capital gains be taxed? How will corporations be taxed? Progressives seem to be pushing hardest for a CTC expansion of more than one year.
Taxing capital gains. Once Sen. Kyrsten Sinema’s objections to any corporate and individual tax rates hikes surfaced, Democratic leaders gave a second look at annual mark-to-market taxation of capital gains. A version of the idea has the backing of Senate Finance Committee Chair Ron Wyden but immediately ran into another roadblock. Moderate Democrat John Tester warned the idea had “challenges.” Tester strongly opposed the similar idea of taxing unrealized capital gains at death. Losing Tester’s vote would sink the bill even if Sinema goes along.
Manchin’s Child Tax Credit could keep 37 million children from receiving benefits. Or not. The Niskanen Center’s Robert Orr and Samuel Hammond estimate that one version of Manchin’s proposed $60,000 income cap for the child tax credit could drop as many as 37.4 million children from the program. It would translate to a cut in benefits for 60 percent of the children currently receiving the monthly payments. However, the analysis appears to assume the credit ends at $60,000 for all households and Manchin has left many key details unresolved.
Where are families are missing out on the expanded CTC? TPC’s Aravind Boddupalli shows how to find them using a new TPC interactive tool. Using data from Treasury, it identifies 50 zip codes where the most eligible families may not be filing for the expanded CTC because they’re outside the tax system. Nearly half of the total population in those zip codes are Hispanic or Latino. These communities also have disproportionately higher shares of Asian and Black populations. Aravind concludes that better outreach campaigns could address the unique needs of these communities and lift more children out of poverty.
Could the US establish a voluntary return-free tax system? The Los Angeles Times reports on a 2005 test of such a system in California, called ReadyReturn. The idea, designed for low-income taxpayers, never went anywhere in the face of opposition from commercial tax prep firms. TPC’s Bill Gale noted, “There are about 30 countries that do this for a big chunk of their populations.” The tax preparation industry had different ideas.
US will drop tariff threats against five European nations. The Financial Times reports (paywall) that the US, in an effort to ease implementation of a 15 percent global minimum corporate tax, will not impose tariffs on the United Kingdom, France, Italy, Spain, and Austria. Those countries introduced digital taxes to target revenue from large US tech firms like Amazon and Facebook but agreed to back off at least until new global tax rules take effect, scheduled for 2023.
On the horizon: Tax cuts for big banks in Britain. British finance minister Rishi Sunak plans to announce a tax cut for the United Kingdom’s biggest banks in an effort to maintain London’s competitiveness after Brexit. The Financial Times reports he plans to cut a bank tax surcharge by more than 60 percent, from 8 percent to 3 percent, starting in April 2023. Sunak previously said the government would delay tax cuts until public finances are back on a sustainable footing after the global pandemic.
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