Today and Wednesday the House Ways and Means Committee is considering its $3.5 trillion tax-and-spend reconciliation bill that includes tax increases and a new $15 billion electric vehicle (EV) tax credit program.
With the bill resulting in an estimated top marginal federal income tax rate of 46.4%, we are focused on opposing tax increases that strip working capital from dealerships, particularly family-owned dealerships, during this fragile economic recovery. Another priority is making sure that the new EV incentives work in the showroom by providing “cash on the hood” for consumers and prompt reimbursement for dealers.
The 881-page Committee bill released yesterday includes some problematic provisions for dealerships, especially when considering the cumulative effect of the tax hikes. For example, the bill:
- Limits the qualified business income Sec. 199A deduction for pass-through businesses. Current law allows a 20% deduction for certain income that owners of pass-through businesses report on their individual tax returns. The proposal would set the maximum allowable deduction at $400,000 (single) and $500,000 (joint) return.
- Increases the top individual rate to 39.6% and applies to taxable income over $400,000 (single) and $450,000 (joint).
- Increases the top capital gains rate from 20% to 25%, which under current law does not apply to anyone earning less than $400,000. The rate would be 28.8% when combined with a 3.8% surtax on net investment income. The new rate would apply to gains realized based on contracts signed after the date of introduction, September 13.
- Increases the top corporate tax rate to 26.5%; applies only to businesses with income in excess of $5 million (remains at 21% for businesses below this amount).
- Expands the 3.8% net investment income tax for taxpayers with greater than $400,000 in taxable income (single) or $500,000 (joint). All income, including investment income, from pass-through businesses will be subject to the tax.
- Accelerates the expiration of estate and gift tax levels by four years to December 31, 2021. This provision would cut the current lifetime estate, gift and generation-skipping tax exemptions from the current $11.7 million level to roughly $6 million per spouse starting in January.
As Congress considers major new EV tax incentives, NADA has focused on ensuring the consumer tax credits are fully refundable and transferable to allow the dealer to provide “cash on the hood.” We note that this bill protects our top priority and does not undermine state franchise laws, which continue to be under threat by direct sellers. For the past several months, NADA has advocated for the simplest and broadest application of EV tax credits to help achieve the goal of spurring wide EV adoption among consumers. NADA will continue to work with congressional leaders, both publicly and privately, to improve and broaden the EV tax credit program as the legislation progresses in the House and Senate.
Attached is a list of the Democrats, including contact information, on the tax writing committees. While the immediate action is in the House, it is timely to contact your Democratic Senators. This is fast moving and complicated legislation, and we will continue to provide updates as the legislation moves forward.
NADA Legislative Affairs