Reviewing the Tax Changes in Senator Bennet’s Real Deal

Presidential candidate and Sen. Michael Bennet (D-CO) released a plan, which he calls his “Real Deal,” with $6 trillion in various initiatives and programs—including universal pre-K, paid family and medical leave, and a public healthcare option—to be funded by several tax increases. These tax increases include new levies, as well as repeals of certain changes made by the 2017 tax reform law.

The proposal would repeal the $500 billion Section 199A pass-through deduction created under the Tax Cuts and Jobs Act (TCJA), a deduction Sen. Bennett refers to as a “loophole.” The corporate tax rate would be increased from its current level of 21 percent to 28 percent along with unspecified rollbacks of the TCJA and changes to international tax provisions. On the individual side, the proposal would reinstate the top individual income tax rate of 39.6 percent, which currently sits at 37 percent, and adding an even higher new top bracket with a 44 percent rate.

Separate from rolling back many of the changes made by 2017 tax reform, the proposal would change the way capital gains are taxed. Under Sen. Bennet’s so-called “smart wealth tax,” capital gains would be taxed on an annual basis at ordinary income tax rates (rather than at preferential rates at the time of sale), a policy more commonly referred to as mark-to-market taxation. Additionally, the plan would end step-up in basis, return to 2009 estate tax exemption levels, and raise tax rates for large estates.

In addition to increasing these various taxes as funding sources for his proposal, Sen. Bennet has also proposed changes to several tax credits. He would increase the child tax credit, which is currently a $2,000 credit for children under age 17, to $3,600 per year for children under age six and to $3,000 a year for children six and older. He would expand the earned income tax credit (EITC) for workers without children to a maximum of $3,000 from $538. He would also expand the premium tax credit, increase the low income housing tax credit by 50 percent, create a refundable mortgage down payment tax credit for primary residences, enact a $3,000 caregiver tax credit, and reform existing tax incentives that primarily benefit high-income homeowners.

Overall, Sen. Bennet’s “Real Deal” aligns with proposals made by other 2020 Democratic presidential candidates. All the leading candidates have suggested increasing the corporate tax rate and individual income tax rates. Many have proposed returning to the 2009 estate tax exemption levels and imposing higher, more progressive estate tax rates. Likewise, many have also proposed increasing capital gains tax rates.

Sen. Bennet’s plan stands out in that he has not specified an income threshold to which his capital gains tax changes would apply, whereas other candidates specify that higher rates would only apply to the wealthy. For example, Sen. Elizabeth Warren (D-MA) has proposed mark-to-market taxation and ordinary income tax rates on capital gains, but only for the top 1 percent of households. It appears that Sen. Bennet’s changes to capital gains taxation would apply to all taxpayers. Another unique feature of his proposal is the repeal of the Section 199A deduction for pass-through businesses.

In total, Sen. Bennet proposes walking back important reforms made by the TCJA, like the lower corporate income tax rate, as well as increasing other types of taxes. His $6 trillion price tag is relatively small compared to the price tag of many of the other candidates’ proposals. Still, the “Real Deal” would increase the tax burden on saving, investing, and working in the United States, and reduce the global competitiveness of the U.S. economy.