Biden is determined to tax the rich after windfalls from the Covid crisis

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Bloomberg) – President Joe Biden’s business team in the White House is determined to deliver on its campaign promise to raise taxes on the rich. Encouraged by the mounting data showing how well America’s rich fared financially during the pandemic.

With Republicans and business lobbying increasing opposition to the government’s tax plans, Democrats must decide how ambitious they will be in trying to revise tax law into what is almost certainly a separate bill. Interviews with senior officials show that confidence is growing in the White House that evidence of increasing inequality will lead to widespread popular support for a tax-the-rich strategy.

Biden himself is convinced of the need, and said last week that those who earn more than $ 400,000 can expect to pay more in taxes.

“2020 really showed him that there is so much fragility in society,” said Heather Boushey, a member of the White House Council of Economic Advisers, in an interview. Given the lack of revenue from the 2017 Republican tax cuts, “the presidents really asked to sit down and think about the huge needs and these issues that we talk about, how we collect taxes,” she said.

Behind the scenes, aides have been working on a proposal to pay for part of Biden’s longer-term agenda. Raising income and capital gains tax rates for top earners, as well as corporate levies, and expanding inheritance taxes would help fund priorities such as infrastructure, climate change, and support for childcare and home health care.

The legislature and administration are intensifying discussions about which measures could be adopted later in the year. The Senate Finance Committee will hold a hearing on Thursday on the impact of the current US international tax structure on employment and investment.

“Great Reform”

Senior members of the administration, including David Kamin, assistant director of the National Economic Council, and Lily Batchelder, hired as assistant Treasury Secretary for tax policy, have worked for years on options to increase the revenue of the best Americans.

Kamin, who outlined possible reforms with Batchelder in a 2019 paper entitled “Taxing the Rich: Problems and Options”, signaled in an interview that the following options are up for discussion:

  • Removing the “step-up-in-base” for real estate, where assets like stocks and real estate are revalued at market prices rather than their original cost – reducing tax liabilities
  • Taxing capital gains for wealthy Americans at higher income tax rates
  • A minimum tax for large companies

“The idea of ​​finally closing a massive void by having the highest income Americans evade tax on their wealth by dealing with an increase in the base and then taxing capital gains as ordinary income is a major reform of our system that I think used, ”said Kamin in an interview.

“These would be major achievements that would fundamentally change the way our tax system treats the richest Americans and the largest corporations so they can’t escape tax the way they can now,” he said .

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The government is also considering withdrawing some of former President Donald Trump’s income tax cuts, aides say.

“Anyone who earns more than $ 400,000 will experience a small to substantial tax increase,” Biden said in an interview with ABC earlier this month. For those below this level, there won’t be “a single penny in additional federal tax,” he said.

Important aspects of the plan remain to be detailed, including details of the higher tax threshold. The White House made it clear last week that the $ 400,000 figure applies to families. When asked in a Bloomberg television interview Monday what the numbers are for families and individuals, Boushey said, “All the details have yet to be worked out. This is an ongoing conversation so I cannot go into details at this time. “

“We only look at people at the very top of the spectrum,” said Boushey.

The so-called K-shaped recovery, in which wealthier Americans also felt like low-income and many civil workers suffered from job losses, displacement, food insecurity, and health risks associated with personal work during Covid-19, has taken place in reinforced administration’s intentions.

The richest 1% of U.S. households added more than $ 4 trillion in wealth in the past year as stocks hit record highs and property values ​​soared, partly due to record-low interest rates. The bottom 50% saw a much smaller increase in wealth of $ 470 billion – and that was helped by the extraordinary income support provided in the Cares Act of March 2020.

A new paper from the left-wing Economic Policy Institute showed that 80% of job losses in 2020 were concentrated in the lowest 25% of wage earners, while workers in the top half of the distribution saw employment gains.

“It’s always true that recessions hit people with low and middle incomes harder, but I’ve never seen anything like it,” said Heidi Shierholz, the institute’s political director and former chief economist at the Ministry of Labor.

Republicans warn that higher taxes will hold back the recovery. The US Chamber of Commerce says increasing corporate levies “will make the United States a less attractive place to invest profits and locate corporate headquarters.”

Republican warning

“Whatever the new normal we’re returning to after Covid-19, I think it’s important that the government get out of the way as much as possible for the economy to find its way,” said Chris Campbell, a former Senate Republican aide who served in the Treasury Department during the Trump administration.

Senate minority chairman Mitch McConnell said last week there would be no bipartisan support for higher taxes, and forecast Democrats will use the reconciliation process – which allows bills to pass the Senate by simple majority – for their proposals.

One tax issue that lawmakers on both parties agree on is the potential for tightening IRS enforcement. A Treasury Department monitoring report last week showed the Internal Revenue Service raised no more than $ 2.4 billion from wealthy individuals who owe taxes to the federal government.

A working paper by the National Bureau of Economic Research earlier this month separately noted that random IRS audits are missing most tax evasion by offshore centers and transit companies such as partnerships and limited companies.

Biden’s current determination marks a shift in a decades-long political career with few episodes of pushing for higher taxes. On the way to the presidential campaign, he distinguished himself from liberal competitors’ plans for a wealth tax, and as Vice President he signed a treaty with Republicans in late 2012 to provide a permanent 82% of the tax cuts originally passed by President George W. Bush.

But the Liberals are now fully behind his efforts.

“We saw him propose, fight, sign and sell one of the most progressive laws in three generations,” Senator Elizabeth Warren said in an interview, referring to the pandemic relief plan. “There is now momentum for real change and tax policy is a critical part of that change.”

– With the support of Laura Davison, Alex Tanzi and Lisa Abramowicz.

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