The U.S. Capitol. (Credit: Toni Smith, USGS. Public domain
By Chris Wodicka
As the immediate crisis of the pandemic and recession abates, Congress has a rare opportunity to address long-standing needs, including many that pre-dated the COVID-19 pandemic. While the Biden administration and congressional negotiators have reached a bipartisan agreement to fund physical infrastructure improvements — like roads and bridges — additional legislation has been proposed that would boost investments in priorities like education and paid leave.
Lawmakers can support a full, equitable recovery and remove barriers to work by helping families afford high-quality child care and maintaining the recent improvements to tax credits for families and working people across Virginia in the years ahead.
At the state level, policymakers have made progress in recent years by expanding access to health care, raising Virginia’s minimum wage, and investing in school and infrastructure improvements. Yet much work remains. Additional federal resources would meaningfully expand opportunity for families and communities who have been excluded due to racial discrimination and disinvestment from rural and urban neighborhoods. This isn’t some pipe dream: President Biden’s proposed American Families Plan would help communities and families by providing $425 billion for child care and universal pre-school, $225 billion for paid leave, and $109 billion for two years of free community college. Additionally, lawmakers should include investments from President Biden’s American Jobs Plan that weren’t included in the latest bipartisan agreement, such as significant funding for housing and clean energy.
These investments would create immediate positive changes for Virginia families. The president’s proposals would improve health care facilities for 725,000 veterans in Virginia, expand health insurance to 94,000 people who are currently uninsured in our state, lift 89,000 children out of poverty by extending the newly enhanced Child Tax Credits, and provide early childhood education for 164,000 3- and 4-year-olds in Virginia.
You might be asking, how do we pay for these investments? The president has proposed several tax justice policies, including reversing or reforming unnecessary tax breaks for profitable corporations and for taxpayers who make more than $400,000 per year. One of these proposals would bump up the corporate tax rate to 28 percent — still much lower than the 35 percent rate that was in place prior to the 2017 federal tax law.
In addition, President Biden seeks to make common-sense reforms to areas like the tax rates for capital gains (profits from selling assets) and stock dividends, which are taxed at much lower rates than wages and other “ordinary” income. The tax break on capital gains has allowed people who live off their wealth to pay lower tax rates than people who work for a living. In the most extreme cases, several of the richest individuals in the country have enjoyed massive gains in recent years, while paying almost nothing in taxes relative to the size of those gains, according to recent reporting from ProPublica. The president’s proposed reforms, which would apply only to millionaires and billionaires, would be one modest step toward correcting this imbalance. Under the reform, capital gains income beyond $1 million would be taxed at similar rates to wage income.
A recent study from the Institute on Taxation and Economic Policy shows that this proposal would affect an extremely small number of tax filers in Virginia — only about 0.4 percent of all taxpayers in the state.
These proposals are designed to be narrow, and given the current low interest rates, wealthy individuals will undoubtedly continue to invest in businesses, real estate and stocks. The ITEP study finds that the income subject to the proposal (the capital gains and dividends income of millionaires that would be taxed at the new rate) would make up just 3.5 percent of the total income going to all Virginians next year. And President Biden’s proposal also removes the loophole that currently allows wealthy individuals to pass assets onto their heirs tax-free. Removing this loophole would encourage money to be reinvested in productive areas.
The new, fairer tax rate that affects just 3.5 percent of the state’s income, would, on its own, likely have minimal effects on our state, yet the significant investments in the president’s plan would meaningfully benefit all of our communities.
The administration’s proposal would also restore the top individual income tax rate on “ordinary” income above $452,700 per year ($509,300 for married couples filing jointly) to 39.6 percent, where it stood before the 2017 tax cuts.
President Biden’s capital gains and dividends proposal is the kind of common-sense reform that would make the federal tax code more just. We ask that Virginia’s congressional delegation support tax justice and invest in our communities.
Chris Wodicka is a senior policy analyst at the Commonwealth Institute for Fiscal Analysis.
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