WASHINGTON - House Democrats on Monday unveiled a proposal to raise taxes on the top sliver of U.S. households, part of a sweeping plan to overhaul the nation's tax code in order to fund President Biden's ambitious $3.5 trillion family and climate plan.
Under the plan released by the House Ways and Means Committee, the top individual income rate would climb to 39.6% for the wealthiest individuals and families. The proposal rolls back a key part of Republicans' 2017 tax overhaul, which lowered the top individual income rate to 37%.
The new rate would apply to single individuals with taxable income of more than $400,000, according to a copy of the legislative outline. It would also apply to married individuals filing jointly whose taxable income tops $450,000; to heads of households with income topping $425,000; to married individuals filing separate returns over $225,000; and to estates and trusts over $12,500.
Still, the proposed brackets seemingly contradict Biden's campaign promise that no one earning less than $400,000 would pay higher taxes if he were elected. For instance, under those proposed brackets, a hypothetical couple that earns $450,000 combined each year would be required to pay the higher taxes, even if the spouses individually made less than $400,000.
This would apply if the couple filed jointly.
"Anybody making more than $400,000 will see a small to a significant tax increase," Biden told ABC News earlier this year. "If you make less than $400,000, you won't see one single penny in additional federal tax."
Assuming the proposal becomes law – which hinges on a deeply divided Congress – the new tax rate would start to apply during the 2022 tax year. It would generate an estimated $170 billion over the next decade, according to an estimate from the Joint Committee on Taxation.
Even if Democrats fail to raise the top tax rate as part of their massive spending package – which they plan to pass along party-line votes using the procedural tool known as budget reconciliation – it will still revert to 39.6% in 2026. That's because although the 2017 tax law temporarily lowered the individual rate, it's poised to sunset in five years.
The top rate is currently paid by single individuals earning more than $518,401 and married individuals filing jointly who earn more than $622,051.
The Ways and Means Committee's provisional proposal also includes a 3% surcharge on individual income above $5 million and increases the top tax rate for capital gains – the proceeds from selling an asset – to 25%, up from 20%.
Separately, the House Democrats announced a bevy of other tax hikes to fund their partisan spending package, including raising the corporate tax rate to 26.5% for businesses earning more than $5 million in income. The corporate rate would be lowered to 18% for small businesses earning less than $400,000; all other businesses would continue to pay the current rate of 21%.