President Joe Biden’s economic team at the White House is determined to deliver on his campaign pledge to raise taxes on the wealthy, encouraged by the growing data that shows how America’s rich fared financially during the pandemic.
With the hardening of Republican opposition and corporate lobbying for government tax plans, Democrats need to decide how ambitious they should be when trying to reform the tax code in what is almost certain to be an autonomous bill. Interviews with senior officials show that there is growing confidence in the White House that evidence of increased inequality will translate into widespread popular support for a strategy to tax the rich.
Biden himself convinced himself of the need, saying last week that those who earn more than $ 400,000 can expect to pay more in taxes.
“2020 really showed him that there were so many weaknesses in society” that need to be addressed, said Heather Boushey, a member of the White House Council of Economic Advisers, in an interview. Financing spending priorities due to the deficit in revenue from the 2017 Republican tax cuts “really required the president to sit down and think about the huge needs and these issues that we are talking about how we tax,” she said.
Behind the scenes, advisers have been working on a proposal to pay for part of Biden’s long-term agenda. Raising income tax rates and capital gains for the top earners, along with business taxes and an expansion of property taxes, would help finance priorities such as infrastructure, climate change and assistance for daycare and home health.
Legislators and the government are stepping up discussions on measures that could be passed later in the year. The Senate Finance Committee will hold a Thursday hearing on the impact on employment and investment of the current US international tax structure.
‘Great Reformation’
Senior members of the administration, including David Kamin, deputy director of the National Economic Council, and Lily Batchelder, who was chosen to become assistant secretary of the Treasury for tax policy, have been working on options to increase revenue for wealthier Americans for years.
Kamin, who with Batchelder mapped out possible reforms in a 2019 article called “Taxing the rich: issues and options, ”he said in an interview that the following options are among those under discussion:
- Removing the “base increase” for properties, which reevaluates assets, such as stocks and real estate at market prices, instead of their original purchase cost – reducing tax obligations
- Taxation of capital gains for wealthy Americans with higher income tax rates
- A minimum tax for large companies
“The idea of finally eliminating what is a huge loophole, in which higher-income Americans escape the tax on their wealth by addressing the increase in the base and then taxing capital gains as ordinary income, is a major reform of the our system, which I think is necessary, ”said Kamin in the interview.
“These would be important achievements, which would fundamentally change the way our tax system treats the wealthiest Americans and the largest corporations so that they cannot escape taxes the way they can now,” he said.
The government also plans to reverse part of former President Donald Trump’s income tax cuts, advisers say.
“Anyone who earns more than $ 400,000 will see a small to significant tax increase,” said Biden in an interview with ABC earlier this month. For those below that level, there will not be “a single cent in the additional federal tax,” he said.
The main aspects of the plan still need to be detailed, including the specifications for the higher tax limit. The White House clarified last week that the $ 400,000 figure applies to families, but Deputy Press Secretary Karine Jean-Pierre suggested on Friday that the level at which tax increases have not yet been defined would begin.
“It is a little early – we are still working on the process,” said Jean-Pierre.
Earnings in 2020
Wealth for America’s top 10% households increased $ 8 trillion
Source: Federal Reserve
The so-called The K-shaped recovery, in which wealthier Americans thrived even when low-income workers and many middle-class workers suffered job losses, evictions, food insecurity and health risks associated with personal work during Covid-19, reinforced the government’s intentions.
The richest 1% of American households added more than $ 4 trillion in wealth last year, as stocks hit record highs and property values swelled, fueled in part by record interest rates. The poorest 50% saw their net worth rise by a much smaller $ 470 billion – and this was reinforced by the extraordinary income support provided by the Cares Act of March 2020.
ONE A new article from the left-wing Economic Policy Institute showed that 80% of job losses in 2020 were concentrated among the poorest 25% of wage earners, while workers in the upper half of the distribution saw gains in employment.
“It is always true that recessions hit lower and middle-income people harder, but I have never seen anything like it,” said Heidi Shierholz, policy director at the institute and former chief economist at the Labor Department.
Republicans warn that higher taxes will halt the recovery. The US Chamber of Commerce says that raising corporate taxes “will make the United States a less attractive place to invest profits and locate corporate headquarters. “
Republican Warning
“Whatever new normality we return to after Covid-19, I think it is important for the government to stay as far away as possible to allow the economy to find its balance,” said Chris Campbell, a former Republican Senate adviser who served at the Treasury during the Trump administration.
Senate minority leader Mitch McConnell said last week that there would be no bipartisan support for higher taxes and predicted that Democrats will use the reconciliation process – which allows bills to be passed by the Senate with a simple majority – for his proposals. .
One tax issue that lawmakers on both sides agree on is the potential to toughen the application of the IRS. A surveillance report from the Treasury Department showed last week that the IRS has failed to raise more than $ 2.4 billion from wealthy individuals who owe arrears taxes to the federal government.
Biden change
A working paper from this month’s National Bureau of Economic Research separately indicated that random IRS audits are missing most of the tax evasion through offshore centers and transit companies, such as limited liability companies and corporations.
Biden’s current determination marks a shift in a decades-long political career, with few episodes of pressure for higher taxes. In the presidential campaign, he made a distinction with liberal competitors’ plans for a wealth tax and, as vice president, struck a deal with Republicans in late 2012 to make 82% of the tax cuts originally approved by President George W. Bush permanent.
But liberals are totally behind their efforts now.
“We saw him propose, fight for, sign and sell one of the most progressive pieces of legislation in three generations,” said Senator Elizabeth Warren in an interview, referring to the pandemic relief plan. “There is now an impetus for real change and tax policy is a critical part of that change.”
– With the help of Laura Davison and Alexandre Tanzi
(Adds context about wealth and tax evasion in the paragraphs before and after the subtitle ‘Biden Shift’.)