The US Capitol. (Photo credit: Toni Smith, USGS. Public domain
By Chris Wodicka
As the immediate pandemic and recession crisis subsides, Congress has a rare opportunity to address longstanding needs, including many that arose prior to the COVID-19 pandemic. While the von Biden administration and Congressional negotiators reached a bipartisan agreement to fund improvements to physical infrastructure – like roads and bridges – additional laws were proposed that would encourage investment in priorities like education and paid vacation.
Lawmakers can support full, equitable recreation and remove work barriers by helping families afford quality childcare and maintaining recent improvements in tax credits for families and professionals across Virginia for years to come.
At the state level, policymakers have made strides in recent years by expanding access to health care, raising the minimum wage in Virginia, and investing in improvements to schools and infrastructure. But there is still a lot of work to do. Additional federal funding would meaningfully expand the opportunities for families and communities excluded from rural and urban neighborhoods due to racial discrimination and divestment. This is not a pipe dream: President Biden’s proposal American family plan would help communities and families by providing $ 425 billion in childcare and universal preschools, $ 225 billion in paid vacations, and $ 109 billion in two years of free community college. In addition, legislators should invest from President Bidens American job plan not included in the latest bipartisan agreement, such as significant funding for housing and clean energy.
These investments would create immediate positive change for Virginia families. The president’s proposals would improve health care for 725,000 veterans in Virginia, expand health coverage to 94,000 people currently uninsured in our state, lift 89,000 children out of poverty by expanding newly improved child tax credits, and 164,000 early childhood Educate 3- and 4-year-olds in Virginia.
You may be wondering how do we pay for these investments? The president has proposed several tax equity measures, including reversing or reforming unnecessary tax breaks for profitable businesses and for taxpayers who earn more than $ 400,000 a year. One of these proposals would raise the corporate tax rate to 28 percent – still much lower than the 35 percent rate that prevailed before the 2017 Federal Tax Act.
In addition, President Biden is seeking sensible reforms in areas such as tax rates on capital gains (profits from the sale of assets) and stock dividends, which are taxed at much lower rates than wages and other “ordinary” income. The capital gains tax break has enabled people who live on their wealth to pay lower tax rates than people who work for a living. In the most extreme cases, several of the country’s richest people have made massive profits in recent years while paying almost no taxes relative to the size of those profits, according to recent reports from ProPublica. The reforms proposed by the president, which only apply to millionaires and billionaires, would be a modest step towards correcting this imbalance. Under the reform, capital gains over $ 1 million would be taxed at rates similar to wages.
A Recent study from the Institute on Taxation and Economic Policy shows that this proposal would affect an extremely small number of Virginia taxpayers – only about 0.4 percent of all taxpayers in the state.
These proposals are narrow and given the current low interest rates, wealthy individuals will continue to invest in companies, real estate and stocks. The ITEP study finds that the proposed income (the capital gains and dividend income of millionaires who would be taxed at the new tax rate) would represent only 3.5 percent of the total income that will go to all Virginians in the next year. And President Biden’s proposal also removes the loophole that currently allows wealthy individuals to pass assets on to their heirs tax-free. Eliminating this loophole would result in money being reinvested in productive areas.
The new, fairer tax rate, which affects just 3.5 percent of national income, would likely have minimal impact on our state on its own, but the substantial investment in the President’s plan would benefit all of our communities.
The government proposal would also reset the highest individual income tax rate for “ordinary” income over $ 452,700 per year ($ 509,300 for co-filing couples) to 39.6 percent, which it was before the 2017 tax cuts.
President Biden’s proposal for capital gains and dividends is a sensible reform that would make federal tax law fairer. We ask the Virginia Congress delegation to support tax justice and invest in our communities.
Chris Wodicka is a Senior Policy Analyst at the Commonwealth Institute for Fiscal Analysis.