Bloomberg

Biden Eyes first big tax hike since 1993 in next economic plan

(Bloomberg) – President Joe Biden is planning the first major federal tax hike since 1993 to fund the long-term economic program designed as a follow-up to his Pandemic Control Act, according to people familiar with The Covid-19 Business Stimulus Act $ 1.9 trillion, the next initiative, which is likely to be even bigger, will not 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 will could include an increase in both corporate and individual tax rates for high earners. With every tax break and every loan that has its own lobby constituency, tinkering with tax rates is associated 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 government, the planned changes not only offer the opportunity to fund important initiatives such as infrastructure, climate and expanded aid for poorer Americans. But also to address what Democrats argue is inequalities in the tax system itself. The plan will test both Biden’s ability to woo Republicans and Democrats’ ability to remain unified. “His whole outlook has always been that Americans believe tax policies must be fair, and he has 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 combating 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 see four people familiar with the discussions propose a series of tax increases, largely in line with Biden’s 2020 campaign proposals. The tax hikes, included in a broader infrastructure and jobs package, are likely to repeal portions of President Donald Trump’s tax bill for 2017, benefiting businesses and high net worth individuals, and making further changes to make tax law more progressive, according to the one with the Plan trusted people. The following proposals are among those currently planned or under consideration, according to respondents who did not want to because the discussions are private: Increase the corporate tax rate from 21% to 28% pass-through companies such as limited liability companies or Partnerships Increase Income Tax Rate for Individuals With Income Greater Than US $ 400,000 Widening Estate Tax Scope Increased Capital Gains Tax Rate for Individuals With Annual Earnings Of US $ 1M or More. (Biden on the campaign suggested applying higher income tax rates) White House economist Heather Boushey stressed that Biden has no plans to increase taxes on those earning less than $ 400,000 a year. But for “people at the top who have benefited from this economy and have not been hit so hard, there is plenty of room to ponder what types of income we can generate,” she said in a Bloomberg television interview Monday. An independent analysis of the Biden campaign’s tax plan 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 full program has yet to be presented, with analysts estimating $ 2 to 4 trillion. A date has not yet been set for an announcement, although the White House said the plan will follow after the Covid-19 relief bill is signed. An open question for Democrats is what parts of the package need to be funded while debating whether there is infrastructure in place and this ultimately pays off – especially given the ongoing low cost of borrowing that remains historically low. Efforts to make the expanded child tax credit in the Pandemic Aid bill permanent – something estimated to price more than $ 1 trillion over a decade – could be harder to sell if classified as fully debt-financed. What Bloomberg’s Economists Are Saying … “The next big legislative initiative, infrastructure investments, could bring lasting economic gains that not only support higher wages but also encourage the diffusion of those gains across demographics and political beliefs.” – Andrew Husby and Eliza Winger, US economists For the full report click here. Democrats need at least 10 Republicans to support the bill and move it under regular Senate rules. But GOP members are signaling they’re ready to fight: “We’re going to have a big, robust discussion on the appropriateness of a big tax hike,” Senate Minority Chairman Mitch McConnell said last month, predicting the Democrats Pursue a reconciliation bill that waives the GOP Kevin Brady, Republican chief on the House Ways & Means Committee, said, “There seems to be a real drive to tax investments in capital gains at marginal income rates.” and called it a “terrible economic mistake”. While about 18% of the George W. Bush administration’s tax cuts were allowed to expire in a 2013 agreement and other laws saw some tax hikes, 1993 marks the last major string of hikes, experts say. This bill was passed by two votes in the House of Representatives, calling on the Vice President to break a tie in the Senate. “I don’t think it’s an understatement to say that the current partisan environment is more severe than it was in 1993,” said Ken Kies, executive director of the Federal Policy Group, former chief of staff of the Joint Tax Committee of Congress. “So you can draw your own conclusions” about the prospect of a deal this year, he said. Still, there could be some tax initiatives Republicans could leave behind. One of them is the switch from a gasoline tax to a fee for kilometers driven to finance motorway projects. Read More: Steam Another Road Tax For Funding Infrastructure Gains Is More Money To Enforce The Internal Revenue Service – A Way To Grow Revenue Without Raising Interest Rates. It is estimated that the agency brings in an additional $ 3 to $ 5 for every additional $ 1 spent on IRS audits. Democrats are also trying to overhaul tax laws, which they believe are not doing enough to discourage US companies from moving jobs and profits offshore – 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 National Economic Council Assistant Director David Kamin, who wrote a paper on “Taxing the Rich” in 2019, are in the process of drafting the Biden tax plans. If the date is passed, tax measures are likely to take effect in 2022 – although some lawmakers and Biden supporters outside the administration have advocated holding back while unemployment remains high due to the pandemic’s own ideas for tax reforms. Senate Finance Committee Chairman Ron Wyden wants to consolidate energy tax breaks and require investors to regularly pay taxes on their investments, including stocks and bonds that make unrealized gains. “A nurse pays taxes on every single paycheck. A billionaire in an affluent suburb, on the other hand, can postpone paying taxes month after month so that paying taxes is all but optional, ”Wyden told Bloomberg in an interview. “I don’t think that’s right.” Warren has levied a wealth tax while House Financial Services Committee chair Maxine Waters said she would like to consider a financial transactions tax. Democratic strategists see the next package as the last chance to reshape the US economy on a grand scale before lawmakers turn to the 2022 mid-term campaign: “Typically, the party in power gets a shot or two to pass major legislative packages,” said Chuck Marr, senior director for Federal Tax Policy at the Left Center for Budget and Policy Priorities. “This is the next shot.” (Updates with White House economists in the first paragraph after the bullet section.) For more articles like this, visit bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP