Chairman of the House Ways and Means Committee, Richard Neal, on Monday announced continued consideration of legislative proposals for marking up the Build Back Better Act, chief among which is a proposal to increase the corporate income tax rate from 21% to 26.5% and the top individual income tax rate from 37% to 39.6%.

The plan to hike up the tax rates is part of a larger tax proposal that is quite detailed. Among other things and aside from the hike in rates, the proposal calls for a graduated corporate tax rate structure, similar to that for individuals; increase in the long-term capital gains tax rate from 20% to 25% (28.8% including a 3.8% surtax on net investment income); funneling of approximately $80 billion in funding to the Internal Revenue Service (IRS), Treasury Inspector General and the Tax Court for enforcement, oversight, and tax dispute adjudication activities; modifications to IRC § 163(j) business interest expense deduction limitation, particularly as they apply to partnerships and S-Corporations; and imposition of an additional § 163(n) interest expense deduction limitation for certain domestic corporations that are part of an international financial reporting group.

The hike in the corporate tax rate to 26.5% falls short of the Biden Administration’s originally planned rate of 28%, while the top individual income tax rate of 39.6% noted above is only triggered when a person’s taxable income exceeds $400,000 for single filers, $425,000 for heads of households, $450,000 for married joint-filers, and $225,000 for married separate-filers. However, estates and trusts with taxable income of just over $12,500 will fall under the 39.6% regime.

The proposal also calls for changes to several provisions of international tax laws such as global intangible low-taxed income (GILTI); foreign-derived intangible income (FDII); base erosion and anti-abuse tax (BEAT); foreign tax credit (FTC) limitations; attributes relating to controlled foreign corporations (CFC) such as earnings and profits, dividends paid to US shareholders of CFCs, § 245A dividends received deduction (DRD); and foreign base company sales and services income.

Specifically, with respect to GILTI and FDII, the proposal seeks to reduce the § 250 deduction from 50% to 37.5% and 37.5% to 21.875%, respectively. Assuming a maximum 26.5% corporate rate under the proposal, this would result in a net 16.5625% GILTI rate and a net 20.7% FDII rate. Additionally, the provision seeks to amend § 951A to require country-by-country reporting under the GILTI regime.

Although tax increases are rarely popular, recent polls suggest that Americans are generally in favor of higher taxes on corporations and the wealthy. This development has come in the wake of large amounts of tax data leaked by the IRS and published by ProPublica detailing massive tax avoidance by billionaire businessmen such as such as Tesla Founder Elon Musk, Amazon founder Jeff Bezos, and investment guru Warren Buffett. All three men reportedly paid “no” taxes in multiple years. Buffett himself has acknowledged this very fact and is known to have famously expressed frustration at the fact that he pays lower taxes than his secretary.

Nobel laureate economist Joseph Stiglitz also noted this trend of tax avoidance over the past several decades in his book “Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity” stating that “Snowballing changes to the tax code … over the past 35 years have prioritized tax cuts and subsidies focused on those at the top, placing a greater tax burden on the rest and causing neglect of critical public investments.”

This proposal from House Democrats is not final and may undergo several revisions and compromises at the Senate level to attain cooperation from the GOP. Even with those revisions, it is very much possible for the proposal to get defeated considering the thin majority held by the Democrats in both houses.