This week, Representative Chris Van Hollen (D-MD) spoke at a Center for American Progress event. At this event he outlined a new tax plan that he says will boost the after-taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. income of low- and middle-income taxpayers and raise taxes on high-income taxpayers.
“Today, I am proposing policies that will raise wages, increase personal savings, and grow the economy. These policies are on top of the tax relief and tax fairness proposals in last year’s Democratic budget resolution, which would extend important tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. improvements for working families and students, expand the Earned Income Tax Credit, and raise revenue to lower deficits and help put us on a sustainable fiscal course.”
His plan creates a number of new tax credits and deductions and expands existing provisions aimed at the middle- and lower-income taxpayers.
- A “Paycheck Bonus” tax credit of $1,000 for individuals ($2,000 for couples) with incomes under $100,000 ($200,000 for couples). This credit will not be refundable and it will be adjusted for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. .
- A “Savers Bonus” tax credit that directs $250 into a tax-preferred savings account if the taxpayer saves at least $500 of his “Paycheck Bonus” tax credit.
- Expand the Child and Dependent Care tax credit by raising the allowable expenses and making it refundable. It will also be adjusted for inflation.
- Create a 20 percent tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions. (up to $60,000) for second earners with children in order to mitigate the marriage penaltyA marriage penalty is when a household’s overall tax bill increases due to a couple marrying and filing taxes jointly. A marriage penalty typically occurs when two individuals with similar incomes marry; this is true for both high- and low-income couples. .
- Provide tax benefits to businesses that invest in training programs
These new tax benefits for middle- and lower-income taxpayers will cost approximates $1.2 trillion over ten years and would be paid for by a number of tax increases aimed at high-income individuals and businesses.
- A 0.1 percent tax on financial transactions.
- The “CEO-Employee Pay Fairness Act,” which would eliminate the deduction for CEO pay (salary or otherwise) over $1 million if the corporation does not raise its workers’ wages by 4 percent each year.
- Some sort of cap on or reduction of itemized deductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. s, or an increase in investment income taxes. (It’s not entirely clear what he means by “Curb tax breaks that favor portfolios.” However, he mentions that this can be done without raising marginal rates, which could imply a cap on deductions.)
Some of these proposals are familiar (we previously discussed The CEO-Employee Pay Fairness Act last September) while others are new, but not necessarily novel policy (the pay check bonus credit is just a larger, non-refundable version of the “Making Work Pay” tax credit). Regardless, these proposals taken together would have a serious impact on the current tax code. They double down on its progressive nature and place a larger tax burden on business. Unfortunately, most of Representative Van Hollen’s tax plan would move the U.S. further away from having a competitive, modern tax code.
The details of each piece of this plan will be released in the coming weeks.Share