Senate Democrats call for higher taxes on Wall Street profits to address federal budget deficit

Personal finance

Senator Chuck Grassley, a Republican from Iowa and ranking member of the Senate Budget Committee, during a hearing in Washington, DC, on Tuesday, March 12, 2024. 
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As Congress wrestles with a looming decision over trillions in expiring tax breaks, lawmakers and experts in a Senate Budget Committee hearing debated several Democratic proposals for higher taxes on corporations and wealthy Americans.

Proponents said the plans aim to address income inequality and the federal budget deficit.

Some of the debate included scrutiny of the corporate tax rate, stock buybacks, capital gains tax rates and levies on profits for private equity and hedge fund managers, known as carried interest. They also discussed taxes on unrealized gains, or profits on unsold assets, among other proposals.

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Higher taxes on corporations and the wealthy would “create a more equitable tax system which generates substantially more revenue and promotes growth,” Joseph Stiglitz, professor of economics at Columbia University, said in prepared testimony.

However, many of these proposals, such as reforms to carried interest, have failed to gain broad support even among Democrats, said Sen. Chuck Grassley, R-Iowa.

While carried interest reform was originally included in the Inflation Reduction Act, those changes were removed before the bill passed in the Senate.

Sen. Mitt Romney, R-Utah, said most of the proposed tax increases discussed during the hearing would have “unintended consequences” for the economy.

The debate over expiring tax breaks

President Joe Biden has also called for higher taxes on the wealthy and corporations, saying these taxes would help pay for an extension of expiring tax breaks for filers who make less than $400,000.

The Tax Cuts and Jobs Act of 2017, or TCJA, which was enacted by former President Donald Trump, included lower federal income brackets, raised the standard deduction and doubledan estate and gift tax exemption, among other provisions.

Without action from Congress, more than 60% of filers will pay higher taxes after 2025 once TCJA provisions expire, according to the Tax Foundation.

However, a full extension of expiring provisions will be costly and could add an estimated $4.6 trillion to the deficit over the next decade, the Congressional Budget Office reported in May.

While Trump hasn’t disclosed many tax policy proposals during his presidential campaign, he has expressed interest in fully extending expiring TCJA provisions.

Of course, the future of the legislation ultimately hinges on which party controls Congress and the White House.

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