On Sept. 15, House Democrats released additional details on planned tax increases to pay for their $3.5 trillion budget reconciliation package. The House Ways and Means Committee continues to mark up its portion of the budget reconciliation package, and some of the top-line tax provisions already revealed may affect ABC members.
- A top combined rate on pass-through income of 46.4%. The bill’s cap on the Section 199A deduction for pass-through businesses would limit individuals to a $400,000 deduction and married couples to $500,000, along with enforcement of a 3.8% tax on their active business income, a 3% surtax on top earners and an increase in the top marginal rate.
- An increase in the top marginal individual income tax rate to 39.6% for married individuals filing jointly with taxable income over $450,000, heads of households with taxable income over $425,000, unmarried individuals with taxable income over $400,000, married individuals filing separate returns with taxable income over $225,000 and estates and trusts with taxable income over $12,500.
- A corporate tax rate hike from 21% to 26.5% for large profitable businesses.*
- The doubling of the estate tax exemption from the Republican’s Tax Cuts and Jobs Act of 2017 would expire at end of 2021 rather than the end of 2025, along with changes to various valuation and trust rules under the current tax code.
- A capital gains rate tax hike from 20% to 25% and a top combined capital gains rate of 31.8%.
- A 3% surtax on the nation’s top earners earning over $5 million.
- An allowance of up to $250 for dues to a labor organization can be claimed as an above-the-line deduction.
* The proposed corporate rate does contain a lower rate of 18% for small businesses (income below $400,000). The 26.5% rate applies only to businesses with income in excess of $5,000,000 and remains at 21% for businesses below that threshold. The proposal does not currently include ABC-opposed provisions that would cap Section 1031 like-kind exchanges and change stepped-up basis for family-owned businesses.
ABC believes that these proposed tax increases would have a devastating impact on ABC members and the economy, making it tougher for many construction businesses to hire new workers and provide competitive pay and benefits for their employees. Last week, ABC sent a letter to the House Ways and Means Committee expressing concerns with the tax proposals and paid leave mandate ahead of the committee’s recent markup. ABC also joined coalitions in three additional letters addressing the Section 199A deduction, stepped-up basis and Section 1031 like-kind exchanges. The stepped-up basis and 1031 exchange proposals were not included in the Ways and Means package.
The Ways and Means Committee’s proposal also revisits areas of the bipartisan infrastructure bill, which may cause heartburn for the bipartisan group of senators that orchestrated the infrastructure deal earlier this summer. The reconciliation package would impose prevailing wage and apprenticeship requirements on clean energy and facility bonds for construction. Specifically, the bill applies Davis-Bacon prevailing wage requirements to all proceeds of exempt facility bonds used for the construction, alteration or repair of water furnishing facilities, sewage facilities, highway or surface freight transfer facilities and zero-emissions vehicle infrastructure facilities.
Further, the bill creates a “bonus rate” tax credit for contractors and subcontractors that provide prevailing wage rates to employees and provide 5% to 15% of labor hours on a project for “qualified apprenticeships.” ABC previously opposed a similar proposal in Sen. Ron Wyden’s, D-Ore., partisan Clean Energy for America Act (S. 1298), which was marked up in the Senate Finance Committee. ABC joined a coalition of organizations in highlighting these concerns in a letter to the committee.
Additionally, on Sept. 10, the House Committee on Education and Labor marked up and approved its $761 billion portion of the bill on a party-line vote. It contains provisions similar to policies included in the ABC-opposed Protecting the Right to Organize Act:
- $5 million for the implementation of electronic voting in union elections.
- Financial penalties on employers for unfair labor practices.
- Personal liability for company directors and officers for unfair labor practices.
- Prohibitions against employers permanently replacing strikers, employers locking out workers, captive audience meetings and arbitration agreements.
Of note, it is not yet clear if the House of Representatives has the votes to approve this proposal. Additionally, the package must pass through the evenly divided U.S. Senate, where, even if the House is able to include all of these provisions in a final package, they will be subject to change under the Senate Byrd Rule that removes extraneous provisions from budget reconciliation packages.
ABC strongly urges its members to reach out to their members of Congress to voice their concerns with the partisan budget reconciliation package by using the ABC Action Center.