President Joe Biden’s economic team at the White House is determined to deliver on its promise to impose taxes on the rich, encouraged by mounting data showing how well America’s wealthy fared financially during the pandemic.
With Republicans and the business lobby resisting the tightening of the government’s tax plans, Democrats must decide how ambitious they are to overhaul the tax code in what will almost certainly be a go-it-alone bill. Interviews with senior officials show that confidence in the White House is growing that evidence of rising inequality will translate into broad popular support for a tax on the wealthy.
Biden herself has become convinced of the necessity, saying last week that those who make more than $ 400,000 can expect to pay more tax.
“2020 really showed him that there are so many of the vulnerabilities in society” that need to be addressed, Heather Boushey, a member of the White House Council of Economic Advisers, said in an interview. Funding spending priorities given a shortage of revenue from the 2017 Republican tax cuts “has really asked the president to sit down and think about both the enormous needs and these questions we are discussing about how we tax,” she said.
Behind the scenes, assistants have been working on a proposal to pay for part of the Biden agenda in the longer term. Raising income and capital gains tax rates for top earners, along with corporate taxes and an extension of estate tax, would help fund priorities such as infrastructure, climate change, and childcare and home health care assistance.
Legislators and the administration are discussing what action could be taken later in the year. The Senate Finance Committee will hold a Thursday hearing on the employment and investment implications of the current international tax structure in the US.
‘Great Reform’
Senior members of the administration, including David Kamin, deputy director of the National Economic Council, and Lily Batchelder, appointed to become assistant secretary of the treasury for tax policy, have been working for years on options to generate income among the best Americans .
Kamin, who charted possible reforms with Batchelder in a 2019 paper entitled ‘Taxing the Rich: Issues and Options’, indicated in an interview that the following options are discussed:
- Removing “step-up in basis” for estates, which revalue assets such as stocks and real estate at market prices, instead of their original purchase costs, reducing tax liabilities
- Tax capital gains for wealthy Americans at income tax rates, which are higher
- A minimum tax for large companies
“The idea of finally ending what is a huge loophole in that the Americans with the highest incomes are escaping taxation on their assets by tackling an increase in the base and then taxing capital gains as ordinary income, a major overhaul of our system is needed, ”Kamin said in the interview.
“These would be significant achievements that would fundamentally change the way our tax system treats the richest Americans and the largest corporations so that they cannot escape taxes in the current way,” he said.
The government is also considering reversing some of former President Donald Trump’s income tax cuts, aides say.
“Anyone who earns more than $ 400,000 will see a small to significant tax increase,” Biden said in an interview with ABC earlier this month. For those below that level, there won’t be “one cent in additional federal tax,” he said.
Important aspects of the plan have yet to be worked out, including the specifics of the higher tax threshold. The White House clarified last week that the $ 400,000 figure applies to families, but Deputy Press Secretary Karine Jean-Pierre suggested Friday that the level at which tax increases would occur for individuals has not yet been determined.
“It’s a bit early – we’re still working on the process,” said Jean-Pierre.
2020 winnings
Wealth for America’s top 10% of households is up $ 8 trillion
Source: Federal Reserve
The so-called K-shaped recovery, in which wealthier Americans thrived, even with low incomes and many middle-class workers suffering from job losses, evictions, food insecurity, and health risks associated with working in personal jobs during Covid-19, has bolstered the government’s intentions.
The richest 1% of US households added more than $ 4 trillion in wealth last year as stocks hit record highs and real estate values surged, fueled in part by record low interest rates. The bottom 50% saw their net worth increase by a much smaller $ 470 billion – and that was bolstered by the extraordinary income support provided in the March 2020 Cares Act.
A new paper from the left-wing Economic Policy Institute showed that 80% of job losses in 2020 were concentrated in the bottom 25% of salaried workers, while workers in the top half of distribution saw employment growth.
“It’s always true that recessions hit low- and middle-income people harder, but I’ve never seen anything like it,” said Heidi Shierholz, the institute’s policy director and former Labor Department economist.
Republicans warn higher taxes will slow the recovery. The US Chamber of Commerce says raising taxes on businesses is “the United States a less attractive place to invest profit and establish the company’s headquarters. “
Republican warning
“Whatever the new normal we return to after Covid-19, I think it is important that the government stay as far away as possible to get the economy back on track,” said Chris Campbell, a former Republican of America. the Senate. assistant who served in the treasury during the Trump administration.
Senate leader Mitch McConnell said last week there would be no bipartisan support for higher taxes, predicting Democrats will use the reconciliation process – allowing bills to pass the Senate by a simple majority – for their proposals.
One tax issue that lawmakers from both parties agree on is the ability to tighten IRS enforcement. A Treasury Department watchdog report last week showed that the Internal Revenue Service has failed to collect more than $ 2.4 billion from wealthy individuals who owe the federal government back taxes.
Biden’s shift
A working paper from the National Bureau of Economic Research this month separately indicated that random IRS audits lack most tax evasion through offshore centers and pass-through companies such as partnerships and limited liability companies.
Biden’s current determination marks a shift in a decades-long political career with few episodes of pushing for higher taxes. On the path of the presidential campaign, he distinguished himself from liberal competitors’ plans for a wealth tax, and as vice president struck a deal with Republicans in late 2012 permanent 82% of the tax cuts originally passed by President George W. Bush.
But Liberals are now fully behind his efforts.
“We’ve seen him propose, fight, sign and sell one of the most progressive laws in three generations,” Senator Elizabeth Warren said in an interview, referring to the pandemic relief plan. “There is momentum for real change now, and tax policy is a critical part of that change.”
– With the assistance of Laura Davison and Alexandre Tanzi
Adds context about empires and tax avoidance in paragraphs before and after the “Biden Shift” subheading.