Biden aims for the first big tax increase since 1993 in the next economic plan

Photographer: Jim Lo Scalzo / EPA / Bloomberg

President Joe Biden is planning the first big federal tax hike since 1993 to help pay for the long-term economic program conceived as auntil its pandemic relief bill, according to people familiar with the matter.

Unlike Covid-19’s $ 1.9 trillion stimulus bill, the next move, which is expected to be even bigger, will not just depend on government debt as a source of funding. While it is increasingly clear that tax increases will be a component – Treasury Secretary Janet Yellen said that at least part of the next bill will have to be paid, and pointed out higher rates – leading consultants are now preparing for a package of measures.

With each tax and credit reduction having its own lobbying constituency to support them, stirring fees is fraught with political risks. This helps to explain why the revision of Bill Clinton’s signature in 1993 stands out from the modest modifications made since then.

For the Biden government, the planned changes are an opportunity not only to fund key initiatives like infrastructure, climate and expanded aid for the poorest Americans, but also to deal with what Democrats claim to be inequalities in the tax system itself. The plan will test Biden’s ability to woo the ability of Republicans and Democrats to stay together.

“His whole view has always been that Americans believe that tax policy needs to be fair, and he saw all of his policy options through that lens,” said Sarah Bianchi, head of US public policy at Evercore ISI and former – economic advisor to Biden. “That’s why the focus is on addressing the unequal treatment between work and wealth.”

Although the White House rejected a total wealth tax, as proposed by progressive Democratic Senator Elizabeth Warren, the government’s current thinking is aimed at the rich.

The White House is expected to propose a set of tax increases, mainly reflecting Biden’s campaign proposals for 2020, according to four people familiar with the discussions.

Tax increases included in any broader infrastructure and jobs package are likely to include repealing parts of President Donald Trump’s 2017 tax law that benefit wealthy corporations and individuals, as well as making other changes to make the tax code more progressive, they said. people familiar with the plan.

The following are among the proposals currently planned or under review, according to the people, who asked not to be identified because the discussions are private:

• Increasing the corporate tax rate from 21% to 28%
• Reducing tax preferences for so-called on-lending companies, such as corporations or limited liability companies
• Increasing the income tax rate for individuals earning more than $ 400,000
• Expanding the scope of real estate tax
• A higher capital gains tax rate for people who earn at least $ 1 million a year. (Biden on the campaign trail proposed the application of higher income tax rates)

THE an independent review of the Biden campaign’s tax plan by the Tax Policy Center estimated it would raise $ 2.1 trillion over a decade, although the government’s plan is likely to be less. Bianchi earlier this month wrote that Democratic congressmen can agree to $ 500 billion.

The overall program has yet to be revealed, with analysts scoring between $ 2 trillion and $ 4 trillion. No date has yet been set for the announcement, although the White House has said the plan would follow the signature of the Covid-19 relief bill.

A pending question for Democrats is what parts of the package need to be financed, amid debate over whether the infrastructure ultimately pays for itself – especially given the current borrowing costs, which remain historically low. Efforts to make the child tax credit expanded in the permanent pandemic aid account – something estimated to cost more than $ 1 trillion in a decade – could be more difficult to sell if presented as entirely debt-financed.

What Bloomberg economists say …

“The next big legislative initiative, investment in infrastructure, could provide the kind of durable economic gains that not only support higher wages, but also promote the spread of those gains across demographic lines and political beliefs.”

–Andrew Husby and Eliza Winger, US economists

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Democrats would need at least 10 Republicans to support the bill under normal Senate rules. But GOP members are signaling that they are prepared to fight.

“We will have a big discussion about the desirability of a big tax hike,” Senate minority leader Mitch McConnell said last month, predicting that Democrats would pursue a reconciliation bill that would renounce the Republican Party and target a corporate tax even greater than 28%.

Kevin Brady, the top Republican on the House’s Ways and Means Committee, said: “There seems to be a real push to tax capital gains investment at marginal income rates,” and called it a “terrible economic mistake.”

While about 18% of George W. Bush’s administration tax cuts were allowed to expire in a 2013 agreement, and other legislation saw some increases in rates. 1993 marks the latest comprehensive set of increases, experts say. This bill passed with a two-vote margin in the House and required the vice president to tie in the Senate.

“I don’t think it’s an understatement to say that the current party environment is more severe than 1993,” said Ken Kies, managing director of the Federal Policy Group, former chief of staff of the Joint Congressional Taxation Committee. “So that you can draw your own conclusions” about the prospects for a business this year, he said.

Still, there may be some fiscal initiatives that Republicans can support. One is to switch from a gasoline tax to a vehicle-kilometer fee traveled to help finance highway projects.

Read more: Vehicle tax per kilometer to help finance infrastructure gains momentum

Another is more money to inspect the Internal Revenue Service – a way to increase revenue without raising fees. Estimates found that for each additional $ 1 spent on IRS audits, the agency brings in an additional $ 3 to $ 5.

Democrats are also looking to revise tax laws that they say do not do enough to stop American companies from shifting jobs and profits abroad as another way to increase revenue, an aide said. Republicans could potentially support incentives, although it is unclear whether they would support penalties.

White House officials, including deputy director of the National Economic Council, David Kamin – who wrote a 2019 article on “Taxing the rich” – are in the process of embodying Biden’s fiscal plans.

As for the deadline, if passed, fiscal measures are likely to take effect in 2022 – although some lawmakers and supporters of Biden outside the government have argued to postpone while unemployment remains high due to the pandemic.