As the fight over how to tax the economy intensifies ahead of the election, President Biden is proposing new rules to go after wealthy tax evaders.
The new rules target businesses designated as partnerships, which have proliferated as tax havens over the past decade and are subject to an entirely new division created by the IRS within its Large Corporations and International Division.
The Treasury Department estimates that the new rules could raise $50 billion in revenue over the next decade, but that’s just a fraction of the roughly $700 billion the government is failing to collect each year.
“The Treasury Department and the IRS are focused on addressing high tax abuses from every angle, and the proposed rules announced today will increase tax fairness and reduce the budget deficit,” Treasury Secretary Janet Yellen said in a statement Friday.
Specifically, the new rules target an accounting device known as “basis shifting,” which allows nested legal entities under a single owner to transfer assets between those entities in order to move those assets from a higher tax rate designation to a lower tax rate designation.
“These transactions are contrary to Congress’ intent to avoid tax liability,” the Treasury Department said, giving the example of a partnership shifting its tax basis from non-tax-exempt stock to tax-exempt production equipment.
Biden plans to let Trump’s tax cuts expire, but he has also promised not to raise taxes on people making less than $400,000 a year.
“I’m going to keep fighting like hell to make it fair. Under my plan, no one making under $400,000 will pay one cent more in federal taxes,” Biden said in his last State of the Union address.
“The previous administration enacted $2 trillion in tax cuts that overwhelmingly benefited the ultra-rich and big corporations and caused the federal deficit to explode, increasing the national debt more than any other presidential term in American history,” he said.
Democrats want to raise the corporate tax rate from the current 21 percent and have proposed a carbon border adjustment as a possible way to raise revenue.
The new regulations will take the form of three separate notices of proposed rulemaking and additional revenue rulings from the IRS, which will be subject to public comment.
The rule comes in the wake of some rather sensational tax proposals unveiled this week by presumptive Republican presidential nominee and former President Donald Trump, who has proposed eliminating income taxes entirely and deriving all government revenue from tariffs on imported goods, a revenue structure not seen in the United States in over a century.
Trump also discussed with lawmakers on Capitol Hill on Thursday repealing the tip tax, a move aimed at appealing to service workers.
With rising inflation depressing public sentiment about the economy, both Biden and Trump are trying to appeal to voters with their tax policies.
Most of the last major changes to the U.S. tax code, enacted in 2017, are set to expire next year, meaning the winning party will get to decide which tax policies to keep and which to repeal.
Democrats slammed Trump’s tariff proposals Thursday night, with Democrats on the Ways and Means Committee, which primarily writes tax policy, saying the former president wants to “party like it’s 1799.”
“Remember, 100% of corporate profits from OG tax fraud went to shareholders and highly paid executives. Zero, that’s right, 0%, flows to workers. This proposal would be even worse,” committee Democrats wrote, citing a University of California study and referring to a Congressional Research Service investigation.
