Biden to propose new partnership rules as tax battle heats up
President Biden is putting forward new rules to go after wealthy tax cheats as the battle on how to tax the economy sizzles ahead of the election.
The new rules target businesses designated as partnerships, which have proliferated over the last decade as tax havens and have been the object of an entirely new IRS department within the agency’s large business and international division.
The Treasury estimated that the new rules would generate $50 billion over the next decade, a fraction of the roughly $700 billion that the government is owed but fails to collect each year.
“Treasury and the IRS are focused on addressing high-end tax abuse from all angles, and the proposed rules released today will increase tax fairness and reduce the deficit,” Treasury Secretary Janet Yellen said in a Friday statement.
Specifically, the new rules target an accounting practice known as “basis shifting” whereby nested legal entities belonging to a single owner can transfer assets among themselves to remove them from higher tax designations and into lower ones.
“These transactions defy Congressional intent to avoid tax liability,” Treasury said, giving an example of a partnership shifting a tax basis from stock, which does not come with a tax deduction, to production equipment, which does.
While Biden is planning to let the Trump tax cuts expire, he has also pledged not to raise any 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 nobody earning less than $400,000 will pay an additional penny in federal taxes,” Biden said at the last State of the Union address.
“The last administration enacted a $2 trillion tax cut that overwhelmingly benefits the very wealthy and the biggest corporations and exploded the federal deficit. They added more to the national debt than in any presidential term in American history,” he said.
Democrats want to raise the corporate tax rate from its current level of 21 percent, and some have floated a carbon border adjustment as a potential revenue raiser.
The new regulations will take the form of three different notices of proposed rulemaking and an additional revenue ruling from the IRS, which will be open to the public for comment.
The rules follow some rather sensational tax proposals from the presumptive GOP presidential nominee, former President Trump, this week, who floated the notion of getting rid of the income tax altogether and generating all government revenue from tariffs levied on imported goods, a revenue structure that hasn’t been seen in the U.S. in over a century.
Trump also talked to lawmakers on Capitol Hill Thursday about canceling taxes on tips, a proposal designed to appeal to service workers.
Both Biden and Trump are trying to appeal to voters with their tax policies as the national mood on the economy has languished due to a period of higher inflation.
Large portions of the last major change to the U.S. tax code, enacted in 2017, are set to expire next year, and the winning party will be able to determine which tax policies stay and which get thrown out.
Democrats roasted Trump’s tariff proposal Thursday evening, with Democrats on the chief tax-writing Ways and Means Committee saying the former president wanted to “party like it’s 1799.”
“Remember, 100 percent of the corporate benefits from the OG Tax Scam went to shareholders and high-paid executives. Zero — yep 0 percent —bd trickled down to workers, and this proposal would be even worse,” Committee Democrats wrote, citing research from the University of California and referencing a study from the Congressional Research Service.