The president campaigned for it and now it’s time for him to make it happen: rolling back tax cuts for America’s rich.
The American Rescue Plan, signed by the president earlier in March, is the first of what the White House has called the two-part agenda on the economy. The next part of the plan is the Build Back Better plan, and associated with it is a plan to help pay for it.
Essentially, this is the opposite of the tax cut bill Republicans passed back in 2017. The past few months have been dedicated to discussing the COVID-19 pandemic and the economic fallout that has resulted. Some might have forgotten, therefore, that Biden’s campaign focused on a tax proposal that included bumping up the corporate tax rate, increasing taxes on households making $400,000 or more, and adjusting estate tax and capital gains taxes.
Now, these are back in the spotlight once more after the third stimulus checks have gotten out of the way. In response to a recent question about whether the president would be raising taxes, Biden answered with a yes. “Anybody making more than $400,000 will see a small to a significant tax increase,” he said, emphasizing that anyone making less than that won’t see any additional federal taxes at all.
From a political viewpoint, it’s not going to be easy. It’s not likely that Biden will get any Republicans to support a tax increase to fund an infrastructure bill, and moderate Democrats might feel the same way. Additionally, some moderate Democrats might not support increasing taxes while the economy recovers from a significant crisis, too.
Another point to note is that Biden isn’t the only one who decides important tax matters. Plenty of Democrats have ideas to revamp taxes too, prominent amongst them Sen. Elizabeth Warren (D-MA), who is a vocal proponent of a wealth tax.
Back in 2017, Republicans slashed taxes for rich people and corporations. Now, Biden wants to reverse that. The full details of Biden’s tax proposal aren’t clear yet. According to Bloomberg, however, much of what he will likely suggest is going to be in line with what he campaigned on.
During his campaign, Biden proposed bumping up the corporate tax rate from 21 to 28 percent (the Republican tax cuts previously brought it down from 35 to 21 percent). Biden also suggested increasing the income tax rate on families making more than $400,000. He proposed changing capital gains taxes for people making more than $1M, so that they’re taxed the same as income.
In addition, Biden proposed getting rid of taxing capital gains on a “stepped-up” basis after people die. A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance, according to Investopedia.
Furthermore, he ran on expanding the estate tax, rolling back deductions for pass-through entities such as S-corps and LLCs introduced as part of the GOP tax cuts, and increasing the minimum tax rate on foreign income paid by big MNCs.
The basic idea behind Biden’s tax approach is to make the system fairer.
The Tax Policy Center estimated Biden’s plan would raise $2.1 trillion over the next 10 years. As Bloomberg has noted, the White House proposal could be smaller.
Treasury Secretary Janet Yellen has indicated plans on the international front to start work so a global minimum tax rate for multinational corporations can be established.
This would prevent countries from lowering their tax rates to attract business and investments, and getting caught up in a cycle of undercutting each other constantly. In her confirmation hearing for treasury secretary, Yellen said she wants to work with other Organization for Economic Cooperation and Development (OECD) countries to stop what has been a “destructive, global race to the bottom” on corporate taxes.
Sen. Wyden, chair of the Finance Committee, is also one to watch. He has proposed legislation on closing the carried loophole, which lets private equity and hedge fund managers pay lower taxes. In addition, he has also advocated for changing how derivatives are taxed and reforms to international taxes.
“If you’re a nurse taking care of COVID patients, you can’t defer paying your taxes. But if you’re a billionaire, you can defer, defer, defer, and then never pay any tax at all,” Wyden said in a powerful statement.
In addition, Sen. Warren is famously a longtime proponent of a wealth tax — this was also a prominent feature of her 2020 presidential campaign. And she has continued to prod the White House on that. Her proposal would put a 2% annual tax on households worth more than $50M and a 3% tax on households worth more than $1B.
Sen. Brian Schatz (D-HI) is reintroducing legislation to impose a financial transaction tax that would impose a small tax on stock market trades. This idea has gained more support since the recent GameStop saga.
The former treasury official, Mundaca, said, “When we talk about new and novel taxes like a financial transaction tax, like a wealth tax, those will be the subject of a lot of debate, because we don’t have a framework yet, and there will be effects to consider. Things like the estate tax, though, those are going to be front and center.”
Other items may also be on the table, including even a tax cut for middle-class families. Many other Democrats are pushing to restore the state and local (SALT) deduction, capped at $10K in 2017.
It’s likely that an infrastructure package, or whatever Biden’s recovery bill entails, will pass through reconciliation.
Biden’s recovery plan is still taking shape. The White House naturally wants to be strategic in how it goes forward. However, there are issues. For instance, the US economy is still struggling due to the COVID-19 pandemic and millions of people are still unemployed. Although the economy has been stimulated by the economic impact payments and the vaccines, the politics of this issue still aren’t too easy.
Policymakers could perhaps phase in tax increases or ensure that these are not applied until unemployment hits a certain level.
Although this is gaining a lot of attention for now, it will likely be weeks or even months before a full proposal takes shape to establish a more equitable tax system. Stay tuned for details as they are finalized!
Have you filed your taxes for this year?
If not, do it now! Get started with professional advice by booking a FREE tax preparation appointment here: https://msgsndr.com/widget/booking/kIWnLZ6tnIKZ5fZ6akhN
Already filed your taxes this year?
Congratulations! Now let’s get you out of debt! With our new and powerful debt elimination program, Evolution remains committed to enhancing your finances and helping you gain control over them in every way possible.
Let us show how much interest we can save you and how to pay off all of your debt fast. Imagine paying off your mortgage in as little as 5-7 years, without refinancing. 🙂
Reach out for a FREE debt analysis consultation today: https://www.evolutiontaxcenter.com/services/debt-elimination/
Please also don’t hesitate to reach out to us if you have any tax questions!
Get in Touch With Us
Reach out to our seasoned team for help with personal taxes, corporate taxes, and much more.