House Democrats propose raising corporate, capital gains tax rates

Democrats on the House Ways and Means Committee unveiled a plan Monday to raise corporate and long-term capital gains tax rates, respectively.

The proposal, which the committee will consider Tuesday as part of a multiday markup that started last week, would raise the corporate tax rate to 26.5% from 21% and the capital gains tax rate to 25% from 20%.

The tax increases, among others, would help pay for the Democrats' $3.5 trillion social spending plan aimed at addressing climate change, expanding Medicare, paid family and medical leave and child care options, establishing universal prekindergarten, and other items.

Under the proposal, the top marginal tax rate would also be raised to 39.6% from 37%. The rate applies to married individuals filing jointly with taxable income over $450,000, heads of households with taxable income over $425,000, unmarried individuals with taxable income over $400,000 and married individuals filing separate returns with taxable income over $225,000.

Parts of the proposal do not go as far as President Joe Biden has called for in the past. Specifically, Mr. Biden has proposed raising the corporate tax rate to 28% and the top income tax rate and the capital gains tax rate for households making over $1 million a year to 39.6%.

The proposal would also prohibit further contributions to a Roth or traditional individual retirement account for a taxable year if the total value of an individual's IRA and defined contribution retirement accounts exceed $10 million. The limit on contributions would apply to single taxpayers — or taxpayers married filing separately — with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000 and heads of households with taxable income over $425,000.

Moreover, the plan would add a new annual reporting requirement for defined contribution plan sponsors on aggregate account balances exceeding $2.5 million. The reporting would be to both the IRS and the plan participant whose balance is being reported.

As part of the markup, the committee on Sept. 9 advanced a measure to require employers that don't offer retirement plans to automatically enroll their employees in individual retirement accounts or 401(k)-type plans.