The president’s proposed tax plan matches much of what he campaigned on: rolling back tax cuts for the rich.
The ink is barely dry on President Joe Biden’s $1.9 trillion Covid-19 relief bill, and the conversation is already shifting to some of the next items on his legislative agenda — including taxes.
The American Rescue Plan, which the president signed earlier this month, is the first of what the White House has said is a two-part agenda on the economy. Next up is the recovery portion — the Build Back Better plan Biden campaigned on that includes investments in items such as infrastructure, green energy, caregiving, and education. That recovery package is likely to be accompanied by a plan to help pay for it, namely, tax increases for corporations and the wealthy. In a way, the reverse of the tax cut bill Republicans passed back in 2017.
The Covid-19 pandemic and resulting economic fallout sucked much the air out of the room with policy discussions in recent months. That makes it easy to forget that Biden ran his campaign in part on a fleshed-out tax proposal that included increasing the corporate tax rate, raising taxes on households making $400,000, and making adjustments on the estate tax and capital gains taxes, among other ideas.
Now the White House and the president have started talking about his tax plan once again. When asked by ABC News’s George Stephanopoulos whether he’d be raising taxes in a recent interview, Biden’s answer was a matter-of-fact yes. “Anybody making more than $400,000 will see a small to a significant tax increase,” he said, emphasizing that anyone making less than that won’t see “one single penny” in additional federal taxes.
The politics aren’t going to be easy: It’s unlikely Biden will get any Republicans to go along with tax increases to fund an infrastructure bill (though it’s unclear if he’d get Republican votes on an infrastructure bill without taxes, either).
Some moderate Democrats might balk at the idea of tax increases, too. And some economists might question the idea of raising taxes as the economy recovers from a significant crisis. Still, Sen. Joe Manchin (D-WV), perhaps the most powerful moderate in the Senate, has said he’s on board with tax increases to pay for an infrastructure and climate bill.
It’s also important to note that Biden’s voice is hardly the only one that matters on taxes. Plenty of Democrats have tax overhaul ideas, including Senate Finance Committee Chair Ron Wyden (D-OR), who plans to release multiple tax-related proposal in the coming months, Sen. Elizabeth Warren (D-MA), a vocal proponent of a wealth tax, and others.
“Whatever the president proposes will be just the beginning,” said Michael Mundaca, head of Ernst & Young’s national tax department and former assistant secretary for tax policy for the Treasury Department. “There are very strong personalities with deep-seated views on tax policy in general. The tight majorities in the Senate mean everyone has a stronger, louder voice than they otherwise would have in a more normal, less closely divided Congress.”
Republicans cut taxes for rich people and corporations in 2017. Joe Biden wants to reverse course.
The full details of what Biden’s tax proposal will look like are still a little fuzzy. According to Bloomberg, which recently reported on the president’s planned tax hikes, much of what he is likely to put forth is in line with what he campaigned on.
On the campaign trail, Biden proposed increasing the corporate tax rate from 21 percent to 28 percent (the Republican tax cuts slashed it from 35 percent to 21 percent) as well as increasing the income tax rate on families making more than $400,000. He proposed changing capital gains taxes — meaning how taxes are applied when someone sells an asset, like a stock — for people making more than $1 million, so that they would be taxed the same as income.
Also on capital gains, Biden proposed getting rid of taxing them on a “stepped-up” basis after people die. It’s a little wonky, but say you’re Facebook CEO Mark Zuckerberg and a lot of your money is tied up in Facebook stock — your wealth goes up over the years, but as long as you don’t sell the stock, you don’t pay taxes on it. You might give $1 billion of that stock to your kids, or they could get it when you die, and they might turn around and sell it later for $1.1 billion.
But they would only be taxed for $0.1 billion — the difference between the cost when they got it and when they sold it — not the full $1.1 billion. Biden’s plan would tax the full $1.1 billion. He also ran on expanding the estate tax, rolling back deductions for pass-through entities such as S-corporations and LLCs put in place under the GOP tax cuts, and increasing the minimum tax rate on foreign income paid by big multinational corporations.
The idea behind Biden’s tax approach, said Sarah Bianchi, head of US public policy at Evercore ISI and former economic policy adviser to Biden, is to make the system fairer. “It’s not designed to be punitive to anybody, but it is designed to say that taxes ought to reflect our values, and right now, the system’s a bit askew,” she said.
Ahead of the 2020 election, the Tax Policy Center estimated Biden’s plan would raise $2.1 trillion over a decade. As Bloomberg notes, his White House proposal could be smaller.
Treasury Secretary Janet Yellen has indicated plans on the international front to start work on urging the Organization for Economic Cooperation and Development (OECD), an international economic organization, to establish a global minimum tax rate for multinational corporations. The idea would be to stop countries from lowering their tax rates to attract investments and business and just perpetually undercutting one another. In her confirmation hearing for treasury secretary, Yellen said she wants to work with other OECD countries to “try to stop what has been a destructive, global race to the bottom” on corporate taxes.
Biden isn’t alone at the tax table
In the weeks and months to come, we’re likely to see a lot of push and pull among lawmakers with Biden’s tax ideas and various proposals of their own.
One important figure to watch: Sen. Wyden, who chairs the Finance Committee. He has previously proposed legislation on closing the carried loophole, which lets private equity and hedge fund managers pay lower taxes, and pushed for changing how derivatives are taxed, which he is likely to advocate for again, as well as reforms to international taxes. He also has a proposal on capital gains that would tax tradable assets, such as stocks, every year. In other words, he’d try to make Zuckerberg pay taxes on his rising Facebook shares now.
“If you’re a nurse taking care of COVID patients, you can’t defer paying your taxes. But if you’re a billionaire, you can defer, defer, defer, and then never pay any tax at all,” Wyden said in a statement.
Sen. Warren is a longtime proponent of a wealth tax — it was a prominent part of her 2020 presidential campaign — and has continued to prod the White House on that. Her Ultra-Millionaire Tax Act would put a 2 percent annual tax on households worth over $50 million and a 3 percent tax on households worth above $1 billion.
Somebody has to pay to make this country run. Somebody has to pay for roads and bridges and scientific research. But the top 0.1% pay a lower share of their wealth in taxes than the bottom 99%. We need a #WealthTax to keep the rich from freeloading off America’s middle class.
— Elizabeth Warren (@ewarren) March 13, 2021
Sen. Brian Schatz (D-HI) is reintroducing legislation to impose a financial transaction tax that would attach a small tax to stock market trades. It’s an idea that’s gained traction off and on with politicians over the years, including with Sen. Bernie Sanders (I-VT), and more recently has come back into the headlines amid the GameStop saga. House Financial Services Committee Chair Maxine Waters (D-CA) has expressed openness to a financial transaction tax.
“When we talk about new and novel taxes like a financial transaction tax, like a wealth tax, those will be the subject of a lot of debate, because we don’t have a framework yet, and there will be effects to consider. Things like the estate tax, though, those are going to be front and center,” Mundaca, the former treasury official, said.
Other items may be on the table, possibly even a tax cut for some middle-class and wealthy families. Senate Majority Leader Chuck Schumer and many Democrats are pushing to restore the state and local tax (SALT) deduction, which was capped at $10,000 in the 2017 tax cuts. Sen. Manchin has said he wants Republican buy-in for an infrastructure package — and that he also will push for raising taxes to pay for it, which may be a hard sell to the GOP.
In the ABC News interview, President Biden acknowledged as much. “Oh, I may not get [Republican votes], but I’ll get the Democratic votes for a tax increase,” he said.
Senate Minority Leader Mitch McConnell recently said he believes an infrastructure package will be a “Trojan horse” for Democrats to pass tax increases through budget reconciliation, which requires only a simple majority in the Senate to pass. “I fully expect that’s what they’ll try to do, and that’s because I don’t think there’s going to be any enthusiasm on our side for a tax increase,” he said.
McConnell’s prediction seems on target: It’s quite likely an infrastructure package, or whatever Biden’s broader recovery bill entails, will go through reconciliation.
The Biden tax proposal is still in its early days
Biden’s follow-up recovery plan is still taking shape, as are plans to accompany it with taxes. The White House wants to be deliberate in how it goes forward — not just in addressing the immediate issues, but also in making strategic decisions about what’s on the horizon.
“What Biden’s trying to do is to make some long-term structural changes for this economy and the investments that we need to be competitive with China and to really bet on American workers and to pay for some of that,” Bianchi said.
But there are obstacles. For one thing, the US economy is hardly firing on all cylinders: the US economy is still hamstrung by the Covid-19 pandemic, and millions of jobs still aren’t back. There is increasing optimism that between the stimulus package and vaccines, the economy is about to bounce back fast, but that doesn’t make the politics of the issue a walk in the park.
“We’re still in the midst of a recession, and it would be pretty easy to make the argument that this isn’t a great time to be talking about tax increases,” said Leonard Burman, co-founder of the Tax Policy Center and a Syracuse University economist. “If the economy comes roaring back, then it would be the appropriate time to be talking about tax increases.”
Policymakers could have some levers here — perhaps phasing in tax increases, or making sure they’re not put in place until unemployment hits a certain level — but it’s still a tricky situation. After all, 2022 is an election year.
“Taking out the politics, planning a tax bill that would help reduce inequality, make the system work better, raise revenue to slow the rate of growth of the debt, all of those things would make a whole lot of sense,” Burman said. “But the question is just timing, and it’s always a bad time for a tax increase because it’s hard to get your base excited about raising taxes.”
Some progressives also question whether Biden’s tax plans are going far enough, including when it comes to race. Dorothy Brown, a law professor at Emory University and author of The whiteness of wealth, said she believes Biden’s tax proposal is too “timid,” specifically when it comes to capital gains. She argued that capital gains taxes should be taxed as income all the time, not just for people making $1 million, because white Americans are likelier to own and sell stocks.
“If you really want to talk about tax reform that gets at systemic racism, look at the systemic racism that made stock ownership an activity white Americans have engaged in for decades but not Black Americans. What have Black Americans done? We’ve worked, we got our income from our labor, so why would we tax capital at lower rates than labor?” she said.
Brown pointed to the Biden administration’s “whole-of-government” approach to addressing racial equity in America, laid out in an executive order, including disaggregating government data by racial groups, among other areas. “If he’s seriously talking about rooting out systemic racism across the government, you cannot have a conversation about tax reform without talking about race,” she said.
It will likely be weeks or months before a fuller package takes shape, one that wraps the spending priorities Biden campaigned on with some ideas on how to pay for them — and to put a more equitable tax system in place. Bianchi emphasized that the president is well aware that now is the moment in his presidency to get big things done. “It’s not a secret that your opportunities are in the beginning, usually, and I think that’s what he’s trying to solve for.”
0 Comments