What you need to know
- The White House has opposed Senator Warren’s proposed wealth tax, but continues to target the rich in its expected string of tax hikes.
- The aim is to increase the income tax rate for individuals with incomes greater than $ 400,000, increase the scope of inheritance tax, and increase the capital gains tax rate for individuals with incomes of $ 1 million and above.
- Other tax reforms include increasing the corporate rate from 21% to 28% and reducing preferences for so-called pass-through companies such as limited liability companies and partnerships.
President Joe Biden is planning the first major federal tax hike since 1993 to help pay for the long-term economic program envisaged as a follow-up to his Pandemic Control Act, according to people familiar with the matter.
In contrast to the $ 1.9 trillion Covid-19 stimulus plan, the next initiative, which is expected to be even bigger, won’t rely solely on government debt as a source of funding.
While it became increasingly clear that tax hikes will be a component – Treasury Secretary Janet Yellen said at least part of the next bill will have to be paid and pointed to higher rates – key advisors are now preparing for a package of measures that could be a hike Include both the corporate income tax rate and the individual tax rate for high earners.
Since every tax break and loan has its own lobby constituency to support it, tinkering with tax rates comes with political risks. This explains why the tax increases in the 1993 revision of Bill Clinton stand out from the modest changes that have been made since then.
For the Biden administration, the proposed changes will not only provide an opportunity to fund key initiatives such as infrastructure, climate and expanded aid to poorer Americans, but also to address the inequalities claimed by the Democrats in the tax system itself. The plan will test both Biden’s ability to woo Republicans and Democrats’ ability to remain unified.
“His whole point of view has always been that Americans believe tax policies must be fair, and he’s looked at all of his policy options through that lens,” said Sarah Bianchi, director of US policy at Evercore ISI and former Biden economic assistant. “That is why the focus is on eliminating the inequalities between work and wealth.”
While the White House has opposed a direct wealth tax as suggested by progressive Democratic Senator Elizabeth Warren, current government thinking is targeting the rich.
The White House is expected to propose a series of tax increases which, according to four people familiar with the discussions, mainly reflect Biden’s 2020 campaign proposals.
Tax hikes included in a broader infrastructure and jobs package likely include the repeal of portions of President Donald Trump’s 2017 tax law that benefited businesses and high net worth individuals, as well as other changes to make tax law more progressive , so the people familiar with them the plan.
The following suggestions are currently planned or are being considered, according to those who asked not to be named as the discussions are private:
- Increase in corporate tax rate from 21% to 28%;
- Reducing tax preferences for so-called pass-through companies such as limited liability companies or partnerships;
- Increase in income tax rate for those earning more than $ 400,000;
- Expanding the scope of inheritance tax;
- A higher capital gains tax rate for individuals who earn $ 1 million or more annually. (Biden on the campaign suggested applying higher income tax rates)
An independent analysis of the tax plan for the Biden campaign conducted by the Tax Policy Center estimated it would raise $ 2.1 trillion over a decade, though the administration’s plan is likely to be smaller. Bianchi wrote earlier this month that Congress Democrats could approve $ 500 billion.
The entire program has yet to be presented. Analysts are reckoning with $ 2 to 4 trillion. A date has not yet been set for an announcement, although the White House said the plan will follow the signing of the Covid-19 Relief Act.
An open question for Democrats is what parts of the package need to be funded amid the debate over whether infrastructure will eventually pay for itself – especially given the ongoing low cost of borrowing that remains historically low.
Efforts to make the expanded child tax credit on the Pandemic Aid bill permanent – something with a price tag valued at more than $ 1 trillion over a decade – could be harder to sell if classified as fully debt-financed will.
The political outlook
Democrats would need at least 10 Republicans to support the bill and bring it under the regular Senate rules. But GOP members are signaling that they are ready to fight.
“We’re going to have a big, robust discussion about the appropriateness of a big tax hike,” Senate Minority Chairman Mitch McConnell said last month, predicting the Democrats would pursue a reconciliation bill that waived the GOP and a corporation tax of more would aim for 28%.