Class struggle? Biden plots tax hikes on high-income Americans
Republicans who have already drawn a hard line against corporate tax hikes are ready to dig even deeper to fight tax increases on wealthy families. Centrist Democrats, especially those in high-cost regions, may be reluctant to support further household levies as the economy recovers from the pandemic. And this despite polls showing that Americans’ support for infrastructure investment increases when they learn it could be paid for by taxing the rich.
Asked about polls indicating support for tax hikes, Republican Kevin Brady (Texas), senior Republican on the Means and Means Committee of Tax Drafting, expressed confidence that voters would view the move as damaging to the economy.
“The American public, when it’s fully explained – it gets it,” Brady told reporters on Friday. “Americans understand that you cannot tax, spend, and walk your way to prosperity.”
White House deliberations set the stage for the next major legislative fight on Capitol Hill, where proposed personal tax hikes are likely to fuel the already fierce debate over whether to impose new levies on big business.
And in this cycle, even some of Biden’s allies might be hesitant to focus on the rich. While Democrats are keen on tackling income inequality, many of them are more comfortable boosting people at the bottom of the income ladder than taking people at the top. Biden says he’s trying to make sure his tax hikes only hit the well-to-do, promising he won’t raise taxes for those earning less than $ 400,000.
However, some Democratic lawmakers in expensive areas like New York and San Francisco will likely object that their voters who earn $ 400,000 are not considered rich. And even those who are clearly wealthy – including those who work on Wall Street, Silicon Valley, and Hollywood – are among the party’s biggest supporters.
Many lawmakers are simultaneously pushing for tax cuts by throwing out a hated cap on state and local tax deductions dubbed SALT, which hits the rich hardest. And the administration has sent mixed signals about whether that $ 400,000 line applies to total household income or individual earnings – a major difference for some high-income families.
“It’s harder to do it against individuals, without a doubt, compared to corporations,” a former Democratic aide said.
“They are going to be pushed back in Congress, and they will be pushed back by the Democrats in the blue state, just as they get a crackdown on SALT,” the aide continued. “Because at the end of the day, $ 400,000 in blue zones for families living in Los Angeles; Cook County, Illinois; or Oakland, California just isn’t the same as in, say, Des Moines, Scranton, or Dayton. So that’s the challenge here. “
The administration is still working on the details of the plans, and a number of proposals remain on the table, according to people familiar with the discussions and in contact with the White House. These include raising the top marginal tax rate to 39.6%, when it was before Republicans’ tax cuts in 2017; taxing capital gains as ordinary income above a certain threshold (the maximum rate is now almost 24 percent); and the elimination of the so-called hardened base on death, a provision sometimes known as the ‘angel of death’ loophole, as it can allow the wealthy to pass their assets on to their heirs free of charge. ‘tax.
Biden, who operated on an unusually detailed tax platform during his presidential campaign, has also previously proposed reducing itemized deductions for the wealthy, increasing their social security taxes and toughening the inheritance tax.
The battle in Congress will reflect the lingering divisions in the public over how much the rich should pay in taxes, whether it is a good idea to significantly expand the size of government, and to what extent Washington’s $ 1 trillion deficits. count.
These debates have only intensified after a year in which the worst economic crisis since the Great Depression fell heavily on middle- and low-income earners, while the wealthiest Americans actually came out on top. . The uneven impact, which some economists have called a “K-shaped” recovery, has fueled arguments around fairness in the tax code and other societal structures.
“It was a crisis that was borne by the poor and the middle and the bottom, and the summit did so well, you should help pay for it,” said Austan Goolsbee, a senior economic adviser under the Obama administration, which unofficially advised Biden’s campaign. , describing the thinking of supporters of further tax hikes. “I don’t think it’s crazy.”
Amid the recession and the coronavirus recovery, and perhaps because of it, the Biden administration will benefit from an electorate that appears to be on its side when it comes to raising taxes.
A recent Quinnipiac poll showed 44% of voters back Biden’s $ 2 trillion infrastructure plan – but when told it would be funded by raising corporate taxes, that number has increased by 9 percentage points, to 53%.
And more than half of voters support infrastructure investments funded by tax hikes for businesses and the wealthy, compared to 27% of those who support spending without new levies, according to a Morning Consult poll in late March. When each tax hike was polled separately, voters preferred increases for those earning more than $ 400,000 more than increases for businesses.
Support for the new tax hikes includes majorities on both sides. Three in four Americans support taxes on the rich, corporate or both to pay for infrastructure plans – and that includes 51% of Republicans, a poll released Thursday by Navigator Research showed.
Still, it remains politically difficult for some lawmakers to support individual tax hikes, and Republicans already argue that higher levies will destroy jobs and hurt the economy as it begins to recover. They also warn that despite Biden’s pledge not to impose new taxes on anyone earning less than $ 400,000 a year, any tax hike will have negative effects on the economy as a whole and on consumers in the class. average will feel an impact.
“Sharp tax hikes reduce incentives to work, save, invest and be productive, especially when you tax those who disproportionately invest their income in the stock market as well as new products for the economy,” he said. said Brian Riedl, former Republican economic aide. lawmakers who are now part of the right-wing Manhattan Institute. “While it is good to drown the rich in taxes, the economic effects are real and negative.”
Even with his long list of tax increases – collectively worth some $ 1.8 trillion – Biden could still find himself strapped for cash, depending on the price of his next spending program.
The White House could, however, structure the proposal as it did with its first infrastructure plan, with revenue collection spread over a longer period than spending. And while moderate Democrats have emphasized the need to pay for the plans, it’s likely that deficit financing could gain support.
Administration officials are “concerned about showing they are paying part of it,” a Democrat staff member from Capitol Hill said. “Not that they are paying for it all.”
The president made it clear in his first plan that he was open to any suggestion on how best to pay it, provided that no new levies were imposed on families earning less than $ 400,000 a year. And regardless of what exactly Biden proposes to fund the Second Plan, any tax hike will be the subject of intense debate for months to come and may well change during negotiations on Capitol Hill.
“Tax bills are really complicated,” said a Democrat close to the White House. “When you do all of this at the same time, it’s almost impossible.”