Image Courtesy from Accounting Today
By Jack Rowing
During the campaign, Joe Biden emphasized his plan for a new set of tax policies, that would redefine and fix the American tax system for the betterment of the American people. Biden’s campaign emphasized the plan’s limits on who it raised taxes on only those earning more than $400,000 a year.
Even with this limit upon who will be taxed, Joe Biden’s tax plan would still be the largest tax hike in 25 years and will increase the corporate tax rate to 28%. It would make a stricter requirement for qualifying as a limited liability corporation making it harder for corporations to hide their taxes in temporary LLCs. It would also expand the estate, or death, tax and would increase a capital gains tax for anyone making over one million dollars a year. All in all, it is expected to raise 2.1 trillion more dollars in the next decade.
Sarah Bianchi, the head of American policy at Evercore and former economic advisor to Joe Biden said “His whole outlook has always been that Americans believe tax policy needs to be fair, and he has viewed all of his policy options through that lens. That is why the focus is on addressing the unequal treatment between work and wealth.”
For reference, this puts Joe Biden directly in between Donald Trump who lowered it to 21%, and Obama who had the tax rate at 35%. Joe Biden’s splitting the difference reflects his moderate campaign agenda. However, this tax rate would still leave us above the global average of 23.8% and would also be higher than both Canada, 25.5%, and the United Kingdom, 19%.
President Biden’s tax plan has faced attacks from both the left and the right. Republicans, worried about growth, have noted that the taxes are expected to reduce GDP by about 1.62%, with only the possibility of this being offset by the spending bills. The Wall Street Journal editorial board has criticized the Biden administration’s seemingly bait and switch upon their $400,000 tax floor. The administration went from $400,000 per individual to $400,000 per household, effectively cutting Biden’s promise in half, as two people making an average of $200,000 would have their taxes increased.
Progressives on his left flank, however, are upset over the lack of inclusion of the Warren proposal for a wealth tax, which would tax all wealth after it had been earned. Biden has said he would not rule out the wealth tax as a means of raising funds but has made no other hardline decision as to whether he will include it in his tax proposal.
His plan was always on raising taxes. Now, however, with the $1.9 trillion already passed, and the plan to pass similar large spending bills, Biden may be looking for other methods of raising cash beyond what he originally planned.