Senate Majority Leader Chuck Schumer and West Virginia Senator Joe Manchin released the outline of a tax, climate and health care deal on Wednesday, in what could prove to be major breakthrough after weeks of negotiations.
The proposal would raise an estimated $739 billion, with the revenues going to fund climate and health initiatives, as well as to reduce the budget deficit. While it would amount to the biggest tax hike in years, it’s far removed from the comprehensive, progressive revamp of the tax code the Biden administration once hoped for, and leave in place much of former Republican President Donald Trump’s 2017 tax-cut package.
It remains unclear whether the deal will be backed by the full Democratic caucus in the 50-50 Senate. It would also need to pass the House, where progressives sought a much bigger plan. Democrats are aiming to vote on the so-called reconciliation bill, which needs a simple majority to pass, before a recess starting in August.
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Here are the highlights of what’s in the deal:
Corporate Taxes
The bill imposes a 15% minimum corporate levy on companies that have traditionally been able to pay little-to-no taxes because they were eligible for a long list of credits and deductions. This measure is known as the book tax, because it is applied to a company’s book, or financial-statement, earnings -- rather than the income calculation traditionally used for tax purposes. The regular, 21% corporate rate is left untouched, maintaining a key part of Trump’s 2017 tax law.
IRS Enforcement
The Internal Revenue Service would get $80 billion to add auditors, improve customer service and modernize technology. Democrats hope to pull in $124 billion in tax revenue from cracking down on tax cheats and increasing compliance by rebuilding the IRS. The agency has lost staff and expertise over the past decade because of budget cuts.
Carried Interest
The plan would end the carried-interest tax break used by private equity and hedge fund managers to lower their tax bills. That allowed for a share of an investment manager’s income to be classified as a capital gain, which is taxed at 23.8% instead of the top 37% rate for salary and wage earnings.
Electric Car Credits
The bill includes $4,000 tax credits for lower and middle income buyers to use to purchase used electric vehicles, and up to $7,500 tax credit for new vehicles. The inclusion is a win for EV makers including Tesla Inc., General Motors Co. and Toyota Motor Co.
Renewable Energy Credits
The plan has $60 billion of incentives to bring clean energy manufacturing into the U.S. These include production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing. The plan also includes investment tax credits to build clean technology manufacturing plants that make EVs, turbines and other products.