US Senate Democrats aim to close tax loopholes on ‘transparent’ companies – sources

WASHINGTON, July 7 (Reuters) – U.S. Senate Democrats are finalizing a plan to close a tax loophole used by many companies, and they want to use the revenue to bolster the Medicare health care program run by the government for the elderly and disabled, sources familiar with the talks said Thursday.

Democrats expect to submit legislation to the Senate congressman in the coming days, said a source, who asked not to be identified in order to discuss private negotiations.

The tax change targets the majority of businesses in the United States which are known as “pass-through” businesses which are not subject to corporate income tax and whose income is instead reported to the government on personal income tax returns, subjecting them to lower tax rates.

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Under the proposed changes, individuals who earn more than $400,000 a year and couples who earn more than $500,000 would pay a 3.8% tax on income derived from their passed-on business income.

The measure is intended to pass through the Senate under special budget rules that require congressional approval and would allow its passage without any Republican support in the deeply divided chamber.

The Medicare funding initiative is the latest effort by Democrats to push through aspects of President Joe Biden’s economic agenda after conservative Democratic Sen. Joe Manchin struck down the sprawling “Build Back Better” bill last year.

Manchin and Senate Majority Leader Chuck Schumer negotiated the details of a scaled-down package amid strong Republican opposition.

Another source close to the negotiations said substantial work still needed to be done before an agreement could be reached on the two most difficult parts of the legislative package: a provision on combating climate change and a tax initiative. broader than the pass-through tax. idea.

The fund that finances Medicare is currently expected to be depleted by 2028. Democrats expect their pass-through tax proposal to raise $200 billion and would help make the trust fund solvent through 2031.

It would be one element of a multi-pronged bill that Democrats hope to pass this year that would also address rising prescription drug prices for seniors, tackling climate change and other changes to the tax code aimed at high earners.

Senate Democrats proposed a deal on Wednesday that would allow the Medicare health plan to negotiate lower prices for prescription drugs. Read more

According to the source, high-income businesses, such as law firms, have found a way to claim only a small portion of their income and have avoided most of the taxes they would otherwise pay.

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Reporting by Rose Horowitch and Richard Cowan; edited by Andy Sullivan and Aurora Ellis

Our standards: The Thomson Reuters Trust Principles.

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