The budget President Biden released Monday calls for $3 trillion in deficit reduction over a decade, and he’s doing it with a familiar approach: tax increases on corporations and the wealthy.
The president discussed several of the proposals in his State of the Union address last week and contrasted them with those of Republicans, who have called for an extension of most of the $2 trillion in tax cuts signed by former President Donald J. Trump into law in 2017. For Mr. Biden, tax policy has been at the center of his efforts to make the economy fairer and counter Republican tax proposals that Democrats deride as giveaways to the rich.
“Does anyone here believe the tax code is fair?” Mr. Biden said during remarks in New Hampshire on Monday. “Me neither”.
In all, Mr. Biden is proposing $5 trillion in additional taxes on corporations and high incomes over the next decade. Here’s what those increases would entail:
Corporate tax increases
The budget uses a combination of approaches to make corporate America pay more in federal taxes. That includes raising the corporate tax rate to 28 percent from 21 percent, which is the level set by the Tax Cuts and Jobs Act of 2017.
Mr Biden is also calling for raising the so-called minimum corporate tax to 21% from 15%. That tax, passed by Democrats in 2022, applies to companies that report more than $1 billion in annual income to shareholders in their financial statements but use deductions, credits and other preferential tax treatment to lower their effective tax rates well below the statutory 21 percent. White House economists estimate that the tax increase could generate $137 billion in new tax revenue over a decade.
The president would also quadruple a 1 percent surcharge on corporate stock buybacks. That tax passed along party lines in 2022.
The use of corporate and private jets would also face higher costs under the budget, which proposes raising fuel taxes “so that business executives and other wealthy Americans pay their fair share for the use of airspace and other public services that related to air travel’. The budget also seeks to eliminate the tax deduction for corporate jet purchases.
And executive pay also targets the budget. The White House is proposing to deny corporate deductions for all compensation related to employees earning more than $1 million. This goes beyond current tax laws, which simply deny such deductions to top executives.
The budget also assumes that a global tax deal that the United States helped sign in 2021 will go into effect, despite Republicans refusing to entertain the new levy. Under this agreement, more than 130 countries committed to establishing minimum corporate tax rates of 15 percent that companies must pay on their foreign profits. Mr Biden wants the US interest rate to rise from 10.5 per cent, which is not in line with the deal, to 21 per cent.
Higher taxes for the richest
Since the 2020 presidential campaign, Mr. Biden has pledged that none of his policies would raise taxes on households earning less than $400,000. The latest budget maintains its laser focus on the richest 1 percent.
Mr. Biden wants to raise the tax rate on capital gains, such as stock sales, for people earning more than $400,000 to 39.6 percent. He also repeated calls to close the so-called carried interest loophole that allows wealthy hedge fund managers and private equity executives to pay lower tax rates than entry-level employees.
The budget also includes another attempt at some version of a wealth tax, a complex idea that has long been an aspiration of progressives.
The proposal would impose a 25% “billionaires tax” on people with a fortune, defined as the total value of their assets, of more than $100 million. The goal is to prevent the wealthiest Americans from implementing tax strategies that allow them to pay lower tax rates than middle-class households.
One of the challenges of so-called estate taxes is determining the value of certain types of assets, such as art, yachts and other holdings. A Treasury document outlining the mechanics of the tax proposals said much would be left to the discretion of the Chancellor of the Exchequer, who would have the power to approve methods for valuing “non-tradable” assets. The Treasury Department said taxpayers will have the opportunity to appeal the assessments and have their assets assessed.
Encouragement of the Internal Revenue Service
One of Mr. Biden’s biggest priorities in his first term was revamping the Internal Revenue Service, which received $80 billion in funding through the Inflation Reduction Act.
The Republicans are eagerly wiping out these funds and have already managed to recoup $20 billion of this money.
The White House budget restores those clawbacks and extends IRS modernization money by an additional $104 billion through 2034.
The Biden administration has argued that investments in the IRS allow the federal government to collect more tax revenue without raising tax rates, forcing corporations and wealthy tax dodgers to pay what they owe. The Treasury Department has estimated that the so-called “tax gap” of uncollected revenue was nearly $700 billion in 2021.
The White House estimated that the additional IRS investments would generate $237 billion in net savings over a decade.
Use of taxes to support pension plans
Mr. Biden is also calling for new efforts to improve the solvency of Social Security and Medicare, including making wealthy Americans pay more for the programs.
In the budget, he opposes benefit cuts for the programs and any additional contributions from workers making less than $400,000 a year. On Monday, Shalanda Young, the White House budget director, hinted that Mr. Biden would try to prop up Social Security in part by targeting a cap on the income subject to the payroll taxes that feed the program. He said Mr. Biden would improve his creditworthiness “by asking high-income Americans to pay their fair share. If you’re making a million dollars in this country, you’re done paying Social Security taxes sometime in February.”
The budget also calls for raising the Medicare and net investment income tax rates by 1.2 percentage points for taxpayers with earnings above $400,000.
Probably dead on arrival
Many of Mr. Biden’s proposals have appeared in similar forms in his previous budgets, and administration officials acknowledged that even with Democrats controlling the House and Senate an estate tax could not be passed.
The budget fell flat with Republicans in Congress on Monday. Senator Charles E. Grassley of Iowa, the top Republican on the Senate Appropriations Committee, described it as “full of cuts to bypass congressional spending caps” and warned that it “represents short-sighted plans to burn the pocketbooks of Americans.”
The Trump campaign predicted, without offering an analysis, that Mr. Biden’s proposed tax hikes would lead to the “immediate” loss of about a million jobs.
Jim Tankersley contributed to the report
