President Joe Biden is planning the first major federal tax increase since 1993 to help pay for the long-term economic program designed as a follow-up to its pandemic relief bill, according to sources familiar with the matter.
Unlike the stimulus law against Covid-19 $ 1.9 trillion, the next initiative, which is expected to be even bigger, will not depend only on public debt as a source of financing. While it is increasingly clear that tax increases will be a component (Treasury Secretary Janet Yellen has said that at least part of the next bill will have to be paid and pointed to higher rates), key advisers are now they are preparing for a package. of measures that could include an increase in both the corporate tax rate as well as the individual rate for people with high incomes.
Since each credit and tax exemption has its own lobby group to back it up, changing rates is fraught with political risks. That helps explain why the tax increases in Bill Clinton’s 1993 reform They stand out from the modest modifications made since then.
For the Biden administration, the planned changes are an opportunity not only to fund key initiatives like infrastructure, climate, and expanded aid for the poorest Americans, but also to address what Democrats argue. are inequities in the tax system itself. The plan will test Biden’s ability to appeal to Republicans and Democrats’ ability to stick together.
“His whole perspective has always been that Americans believe that fiscal policy should be fair, and he has seen all of his policy options through that lens,” said Sarah Bianchi, chief of US public policy at Evercore. ISI and a former financial assistant to Biden. “That is why the focus is on address the inequality of treatment between work and wealth ”.
While the White House has rejected an absolute estate tax, as proposed by progressive Democratic Sen. Elizabeth Warren, the administration’s current thinking targets the rich.
The White House is expected to propose a series of tax increases, mostly reflecting Biden’s 2020 campaign proposals, according to sources familiar with the discussions.
Tax increases included in any broader infrastructure and jobs package are likely to include the repeal of parts of President Donald Trump’s 2017 tax bill. that benefit corporations and wealthy individualsas well as making other changes to make the tax code more progressive, they said.
The following are among the proposals currently planned or under consideration, according to the people who asked not to be identified as the discussions are private:
- Increase the corporate tax rate from 21% to 28%
- Reduction of tax preferences for so-called transfer companies, such as limited liability companies or companies
- Increase the income tax rate for people earning more than $ 400,000 by expanding the scope of the inheritance tax
- A higher tax rate on capital gains for people who make at least $ 1 million a year. (Biden in the election campaign proposed to apply income tax rates, which would be higher)
White House economist Heather Boushey stressed that Biden does not intend to raise taxes on people who earn less than $ 400,000 a year. But for “the people at the top who have been able to benefit from this economy and have not been so affected, there is a lot of room to think about what kind of income we can raise “he said on Bloomberg TV. interview on Monday.
An independent analysis of Biden’s campaign fiscal plan by the Center for Fiscal Policy estimated that would raise $ 2.1 trillion in a decade, though the administration’s plan is likely to be less. Bianchi wrote earlier this month that Congressional Democrats could agree to $ 500 billion.
The overall program has yet to be revealed, with analysts targeting between $ 2 trillion and $ 4 trillion. An announcement date has not been set yet, though the White House said the plan would follow the signing of the Covid-19 relief bill.
As for the timing, if passed, the tax measures would likely go into effect in 2022, although some lawmakers and Biden supporters are outside the administration. They have advocated waiting while unemployment remains high due to the pandemic.
Legislators have their own ideas for tax reforms. Senate Finance Committee Chairman Ron Wyden wants to consolidate tax exemptions on energy and require investors to pay regular taxes on their investments, including stocks and bonds that have unrealized gains.
“A nurse pays taxes with every paycheck. On the other hand, a billionaire in a prosperous suburb you can defer paying taxes month after month to the point where paying taxes is practically optional, ”Wyden told Bloomberg in an interview. “I don’t think that’s correct.”
Warren has proposed a wealth tax, while House Financial Services Committee Chair Maxine Waters has said she would like to consider a tax on financial transactions.
Democratic strategists see the next package as effectively the last chance to reshape America’s economy on a grand scale before lawmakers turn to the 2022 mid-term campaign.
“Typically, the ruling party has one or two opportunities to make big legislative packages,” said Chuck Marr, senior director for Federal Tax Policy at the left-leaning Center for Budget and Policy Priorities. “This is the next take.”
By Nancy Cook and Laura Davison. Bloomberg Agency
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