Senate Budget Chairman Bernie Sanders unveiled proposals to raise taxes by at least $2.8 trillion in a pair of bills he introduced Thursday that the Vermont independent said would “end our rigged tax code” and reduce income inequality by making corporations and billionaires pay more.
“We can no longer tolerate many large corporations making billions of dollars a year in profits to pay nothing, zero, in federal income taxes,” Sanders said at a Thursday hearing that coincided with the release of his double-barreled package aimed at mega-corporations and large estates.
One draft bill would raise at least $1.3 trillion over a decade by setting the corporate tax rate back at 35 percent, where it was before the 2017 GOP tax overhaul dropped it down to 21 percent. The measure would also generate $1.02 trillion over 10 years by changing the way multinationals are taxed, according to an analysis by the Joint Committee on Taxation. The draft estate tax bill would raise $430 billion during that time frame.
The total tax increase would approach the cost of the $3 trillion infrastructure package the White House is assembling. But while Sanders enjoys some sway over the process from his perch as Budget chairman, actual tax legislation will be written by the Senate Finance and House Ways and Means committees.
And more conservative Democrats like Sen. Joe Manchin III of West Virginia have already balked even at the 28 percent corporate tax rate President Joe Biden has proposed. At a separate hearing Thursday, Senate Finance Chairman Ron Wyden said that “in the coming days” he would be “releasing a new framework for international tax” he’s working on with panel Democrats Sherrod Brown of Ohio and Mark Warner of Virginia.
Likewise, Biden has his own ideas on rewriting the tax code to discourage the movement of U.S. jobs overseas and to encourage domestic manufacturing. A Biden campaign plan to raise taxes on multinationals would raise somewhere between $500 billion and $1 trillion over a decade, according to independent estimates, while his proposed 10-percent tax credit for new investments in U.S. manufacturing could cost $375 billion, according to a Tax Policy Center analysis.
While shortages over the last year of everything from masks to semiconductors has made domestic manufacturing and secure supply chains hot issues, Republicans defend the international framework they set up in the 2017 law and which they credit in part for the pre-pandemic booming economy. That framework was centered on a new minimum tax multinationals must pay, though Democrats note that a large exclusion left many companies paying little U.S. income taxes.
A new JCT study of 81 large U.S.-based multinationals saw their average federal income tax rates decline from 16 percent in 2017 to 7.8 percent in 2018 after the tax overhaul became law. Giving such favorable treatment to these companies is not necessary to keep them based in the U.S., Wyden said at Thursday’s hearing. “Our country does not have to behave like some kind of minor island off the coast of nowhere selling zero-tax P.O. boxes to corporate headquarters to crank up a quick buck,” he said.
But Sen. Patrick J. Toomey, R-Pa., a Finance Committee member, argued that the 2017 law “brought a complete halt to inversions,” the practice of U.S. companies moving subsidiaries or even headquarters overseas for tax reasons.
The biggest piece of Sanders’ multinational tax package would at least double the 10.5 percent minimum tax rate U.S. companies pay on their highly-mobile income from “intangible” assets like patents and trademarks that can easily be shifted to low-tax jurisdictions and offshore tax havens. Sanders instead would make companies pay the same rate as they do on U.S. profits,and subject all profits from overseas subsidiaries to immediate tax.
He’d also limit the ability of companies to generate tax credits reducing their U.S. tax bills by amounts paid to foreign taxing authorities by subjecting U.S. businesses to a per-country limit, so they can’t, for instance, use foreign tax credits from high-tax countries to offset U.S. tax on income booked in low-tax jurisdictions. Based on the current 21 percent corporate tax rate alone, those provisions would raise $692 billion over a decade, the JCT said. At a 35 percent rate, that figure could grow substantially.
The next biggest tax increase on multinationals, at $224 billion over 10 years, would be to repeal a deduction for income earned overseas from intangible assets located in the U.S. that was established in the 2017 tax law. Sanders and other critics have knocked the break as a “perverse incentive” to export more operations to overseas locales because under the current formula the benefit can shrink if companies generate a larger return from their domestic tangible assets.
Another $105 billion would come from proposals such as shrinking interest deductions companies can claim on debt incurred by their U.S. operations; increasing a tax on deductible payments companies can make to foreign affiliates; making it easier for former U.S.-based companies to trigger anti-inversion rules and be subject to U.S. corporate tax; and reducing foreign tax credits U.S. multinationals can claim on payments to countries for special economic benefits, like oil extraction rights or gambling licenses.
Sanders’ estate bill would dramatically increase taxes on large estates passed to heirs at death and gifts made during an individuals’ lifetime from the current law rate of 40 percent on assets valued above $11.7 million per spouse.
The Sanders bill would slash the estate tax exemption to $3.5 million, while raising the tax rate to 45 percent. That rate would then increase with the size of the estate, heading north to 50 percent above $10 million; 55 percent starting at $50 million; and topping out at 65 percent at $1 billion and above. A present-law deduction for farmland would increase from about $1.2 million this year to $3 million starting in 2022, indexed for inflation.
Other changes in Sanders’ proposal, which Senate Finance member Sheldon Whitehouse, D-R.I., among others, is co-sponsoring, would tighten up annual gift tax exclusions and methods for lowering the value of assets for estate tax purposes.
While revenue estimators placed a $430 billion figure on the measure, Sanders released a list of billionaires and their net worth as of last week and calculated the total estate tax their families would owe if his proposal became law: $2.7 trillion. Heirs to Amazon’s Jeff Bezos and Tesla’s Elon Musk, at the top of the list, would each owe more than $40 billion extra under Sanders’ bill, or about 62 percent more than they’d owe under current law.
Sanders might find it difficult to drum up support for such an expansive estate tax; Biden, for instance, would set the tax at 45 percent on estates larger than $3.5 million, but would stop there.
But Sanders sought to drum up support by demonstrating that the superrich are ready to pony up. Abigail Disney, a documentary film producer and an heir to the Walt Disney fortune, backed proposals to make the wealthy pay more during the Senate Budget hearing Thursday.
Casting herself as a “proud class traitor,” Disney challenged the argument that high taxes discourage economic activity.
“My grandfather managed to accumulate a large amount of wealth in a tax environment some now call punitive,” she said, adding that he also did so while negotiating with unions and navigating a regulatory environment “many now describe as draconian.”
Disney is the granddaughter of Roy Disney, who founded the Disney empire along with his brother Walt Disney.
She said her family “went from dirt poor to embarrassingly wealthy in two generations.”
Paul M. Krawzak contributed to this report.