WASHINGTON — Two sources familiar with the discussions said that Senate Democrats reached an agreement to increase taxes on high-earners who they claim are using a loophole in order to reduce their tax bills.
Sources say that lawmakers plan to end the tax break for people earning over $400,000 per year. This will require them to pay 3.8 Percent in taxes on income earned from pass-through companies. It is essentially a slimmed down package after last year’s failure to repeal the Build Back Better Act.
One source stated that they expect closing the tax loophole to raise $200 billion over a decade. The money will be used for Medicare through 2031 in an effort not to bankrupt the federal health care system.
The program’s hospital trust fund for insurance is at risk of running out of funds without congressional intervention.
Senator Chuck Schumer (D-N.Y.), and Sen. Joe Manchin (D-W.Va.) have been privately negotiating a bill which would include prescription drug savings. They’ve also reached an agreement on energy and climate funding, tax increases, and other issues. The deal has not been reached and it is unclear if they will.
One source says that the tax proposal will be submitted to the Senate in the next few days to verify it meets the complex rules of a special-budget process. This would allow Democrats to pass it with simple majority.
Pass-through entities may be sole proprietorships, partnerships, or sole proprietorships. A partner in a law office can claim a portion as salary, and the rest as distributed profit — and pay less taxes. This new plan aims to reduce that.
According to a source familiar, the proposal would “ensure that high-income owners in certain pass-through businesses pay the 3.8% net investment income tax (NIIT), on their income to finance health care.” The pass-through NIIT proposal, in keeping with President Biden’s promise to not raise taxes on those earning less than $400,000, applies to all individuals, joint filers, trusts and estates that earn more than $500,000, as well as to anyone who earns more than this.
