Infrastructure Bill Could Hike Taxes

March 30, 2021

Fresh off the $1.9 trillion American Rescue Plan Act (ARPA), the Biden administration is preparing to release his Build Back Better (BBB) agenda, which includes an ambitious infrastructure, jobs and clean energy package that could be worth as much as $4 trillion and—crucially—financed in part by major tax increases in addition to deficit spending.

As reported, the legislative effort is expected to come in two pieces, the first addressing infrastructure and climate change, with the latter focusing on his remaining goals—including a national paid leave program and free community college.

As opposed to the ARPA, which was completely debt-financed, the BBB is anticipated to be partly paid for with tax increases. According to sources, those increases would also be split between the two bills. As part of the infrastructure bill, President Biden may seek to increase the corporate rate to 28 percent from 21 percent and make several changes to the international tax regime, including an increase in the global minimum tax from 13 percent to 21 percent.

Individual tax increases may be used to pay for the second bill; changes reported to be on the table include raising the top rate on ordinary income from 37 percent to 39.6 percent, eliminating the preferential rate on long-term capital gains for those with taxable income in excess of $1 million, and expanding the reach and rate of the current estate tax regime. These types of targeted tax increases were all included in the President’s campaign-trail tax proposal.

The below proposals currently planned or under consideration, which may have the greatest impact on the small-business community, include:

  • Raising the corporate tax rate to 28 percent from 21 percent;
  • Paring back tax preferences for so-called pass-through businesses, such as limited-liability companies or partnerships;
  • Raising the income tax rate on individuals earning more than $400,000;
  • Expanding the estate tax’s reach;
  • A higher capital-gains tax rate for individuals earning at least $1 million annually.

Understanding the small business deduction, section 199A, is on the chopping block, it is crucial to fortify congressional support through education efforts and outreach to cosponsor the Main Street Tax Certainty Act (H.R. 1381/S. 480). NSBA strongly supports the Main Street Tax Certainty Act. The small business deduction allows pass-through businesses the ability to deduct up to 20 percent of qualified business income and, unfortunately, it is currently scheduled to expire at the end of 2025. This legislation makes this critical deduction permanent for small-business owners across the country. NSBA joined a strong coalition supporting the legislation and sent a letter of support for the Main Street Certainty Act– H.R. 1381 and S. 480.

President Biden is likely to face resistance to all these tax changes from lawmakers, especially Republicans who will undoubtedly balk at the repeal of parts of former President Trump’s policy achievement, and possibly from moderates in his own party. After all, Republican leaders have made it clear that tax increases of the like mentioned above are an absolute non-starter. Just recently, Senate Minority Leader Mitch McConnell (R-Ky.) confirmed as much, stating that Democrats, “…want to raise taxes across the board, and the only way I think they could pull that off would be through a reconciliation process.”