Summary of Tax Fairness Provisions in the Rebuild America Act

The Rebuild America Act, introduced on March 29, 2012 by Sen. Tom Harkin (D-IA), Chair of the Senate Health, Education, Labor and Pensions Committee, would promote broadly shared prosperity and finance crucial investments in a fair and fiscally responsible way.   By promoting a more equitable tax system and raising needed revenues from those with the greatest ability to pay, the Act would help chart a course towards a full recovery and expanded economic opportunity for all.  This is especially important to women, who disproportionately rely on programs funded by federal revenues to protect their health, access higher education, obtain quality child care, meet their basic needs, and achieve a secure retirement. 

Specifically, the Act would do the following to raise revenues to support key investments and help restore balance to the tax code:

Implement the “Buffett Rule” to ensure that millionaires pay their fair share of taxes. 

The Act would impose a 30 percent minimum tax rate on those with incomes above $1 million, with a phase-in between $1 and $2 million.  This tax was proposed in the Paying a Fair Share Act of 2012 (S.2230), introduced by Sen. Sheldon Whitehouse (D-RI) but blocked by a minority of Senators on April 17.  The Joint Committee on Taxation has estimated that the tax would raise $46.7 billion over 10 years, compared to current law.

Reduce the tax preference for “unearned” income for wealthier investors. 

The Act would increase the tax rate on income from both capital gains and dividends to 25 percent for those in a 25 percent or higher income tax bracket.  Currently, as a result of the tax cuts enacted in 2003 and extended in 2010, income from capital gains and dividends is taxed at a maximum rate of 15 percent, compared to a maximum federal income tax rate of 35 percent on income from work.  

Close the tax loophole that allows multi-millionaire managers of private investment funds to pay a lower tax rate on their compensation than ordinary Americans. 

Private equity and hedge fund managers have devised a way to make the bulk of their compensation look like capital gains, to take advantage of the fact that income from investments is taxed at a lower rate than income from work.  By arranging to take their compensation for providing investment advice and asset management services in the form of a percentage of profits (a “carried interest”) in the funds they manage, they pay federal income tax on that compensation at a maximum rate of 15 percent rather than the current top marginal rate of 35 percent that applies to income from work.  They also avoid paying the Medicare payroll taxes that other Americans pay on their income from work. 

The Act would treat carried interest income as ordinary income, as proposed in 2007 by Rep. Sander Levin (D-MI 12) and Rep. Charlie Rangel (D-NY 15), and  subject the income to generally higher rates and payroll taxes.  President Obama’s FY 2013 budget proposed to close this loophole as well, raising an estimated $13.5 billion over 10 years.

Adopt a Wall Street Trading tax that would raise revenue and deter speculation. 

The Act would tax common financial trades undertaken by banks and financial firms, at a rate of 3 basis points – 3 cents per $100 traded.  The tax would apply to trading of financial securities, including stocks, bonds, and other debt securities, except for their initial issuance. The tax would also cover all derivative contracts at their actual cost, rather than the notional cost of their underlying security.

The tax would reduce certain speculative activities like high-speed computer trading, but typical investors who use financial markets to invest and save for retirement would feel minimal impact because the tax is so small.  The Joint Committee on Taxation estimates that even this small tax would generate $352 billion over 10 years.

End tax breaks for companies that ship jobs and profits overseas. 

The Act includes international tax reform proposals that target corporate tax avoidance, reduce incentives for corporations to shift jobs and profits offshore, and crack down on tax havens where corporations and wealthy individuals evade taxes.  The Joint Committee on Taxation estimates that similar provisions would generate about $120 billion over 10 years.

Force Wall Street to take responsibility for the financial crisis.   

The Act would adopt President Obama’s proposal for a new "financial crisis responsibility fee" on the largest financial firms to compensate taxpayers for the extraordinary support provided to the financial sector during the recession.

The fee would apply to any financial institution with assets in excess of $50 billion that received taxpayer assistance through the Emergency Economic Stabilization Act of 2008, including the Troubled Asset Relief Program (TARP), and would be designed to collect a total of $65 billion over 10 years.  

Click here to read about other provisions of the Rebuild America Act, here for a more extensive summary of the child care and early learning provisions in the Act, and here for an analysis of the importance of the Act’s minimum wage increase for women.