Joe Biden banks on $3.6 trillion tax hike on the rich and corporations

In releasing the first Treasury “Green Book” since 2016, the Biden administration revived a tradition that the Trump administration had abandoned.

Written by Alan Rappeport

President Joe Biden on Friday unveiled $3.6 trillion in tax increases on wealthy Americans and big corporations to pay for his plans to combat climate change, reduce income inequality and significantly expand the nation’s social safety net.

For the wealthiest taxpayers, the proposals would mean higher taxes on their income, the sale of their investments and the transfer of their assets when they die. Starting at the end of 2021, the top individual income tax rate would rise to 39.6% from 37%, reversing the Trump administration’s tax cuts for the highest income taxpayers. The new rate would apply to income over $509,300 for married couples filing jointly and $452,700 for unmarried individuals.

Taxes on capital gains — the proceeds of selling assets like stock or a boat — for people earning more than $1 million would be taxed as ordinary income, effectively increasing the rate wealthy individuals pay on that money to 39.6% from 20%.

Because capital gains income would also still be subject to a 3.8% surtax that helps fund the Affordable Care Act, the conservative Tax Foundation estimated that high-earning taxpayers in some states could face tax rates on their capital gains that are above 50%, the highest such tax burden in a century.

Corporations would also face a higher income tax rate, 28% from the existing 21%, as well as a crackdown on profit shifting and the end of tax breaks for energy companies that pollute the environment. A beefed up Internal Revenue Service would be standing watch to ensure that the federal government can afford to chase rich tax cheats.

The tax increases would be offset by $1.2 trillion of new tax credits and benefits to encourage development of green energy technology and to expand access to low-income housing and child care. The proposals were the most detailed look to date at how the Biden administration would pay for its $4 trillion jobs and infrastructure plans.

In releasing the first Treasury “Green Book” since 2016, the Biden administration revived a tradition that the Trump administration had abandoned.

Biden’s tax proposals will almost certainly not be enacted as written by a narrowly divided Congress. Republicans already denouncing the plan could be joined by some moderate Democrats.

Republican lawmakers have already said that they will oppose changes to the 2017 Tax Cuts and Jobs Act, President Donald Trump’s signature legislative achievement. The scale of Biden’s proposed tax increases left some Republican economists aghast.

“This is truly tax and spend on steroids,” said Douglas Holtz-Eakin, president of the American Action Forum and former chief economist of President George W. Bush’s Council of Economic Advisers, who added that the average level of taxation over 10 years would be “higher than any 10-year period in modern history.”

Moreover, the change to capital gains taxation would be retroactive to April 2021, preventing a deluge of asset sales before the tax increase became law. A separate proposal that would apply income taxes to unrealized gains for assets transferred at death would take effect Dec. 31.

The nation’s largest business lobbying group, the U.S. Chamber of Commerce, assailed the tax proposals Friday.

“Perhaps the only thing besides a resurgence in the global pandemic that could reverse America’s economic recovery is the administration’s proposed tax increases on employers and investment,” said Neil Bradley, the group’s chief policy officer.

“The tax on capital gains would hit two-thirds of capital investment,” he added. “The tax on corporations would hit 1.4 million small businesses and would impose on America’s largest businesses the highest tax rate in the industrialized world.”

A key issue still under consideration at the White House and Treasury Department is how to handle the middle-income tax cuts passed in 2017 that are scheduled to expire in 2025.

Since Biden has pledged that no Americans earning less than $400,000 a year will have their taxes go up, some Republicans on Friday seized on the indecision as a sign that he would break his promise.

The Treasury’s report also avoided the contentious topic of raising the limit for state and local tax deductions, which were capped at $10,000 under the 2017 tax law. Many House Democrats from high-tax states want the deduction expanded, even though critics argue that doing so would benefit the wealthy.

The Biden administration did offer some additional tax relief for low- and middle-income taxpayers, proposing that the Child and Dependent Care Tax Credit that was passed as part of the “American Rescue Plan,” which Biden signed into law in March, be made permanent. It also proposed extending the recently increased child tax credit through 2025. The White House believes that these provisions would bring a substantial reduction in child poverty.

Corporations would pick up the tab for much of Biden’s $6 trillion budget proposal.

If the tax policies were enacted, the energy industry would face some of the most significant consequences. Treasury Department officials said that they went through the tax code to eliminate preferential treatment for the fossil fuel industry. In the meantime, the administration provides more than $300 billion of incentives to expand residential energy efficiency and renewable energy.

The administration also proposed a tax credit for homeowners and businesses in areas affected by disasters who take steps to protect their properties against future floods, fires or other catastrophes. The credit would be worth 25% of the cost of that work, capped at $5,000.

The proposal reflects the growing toll of disasters, which have become more frequent and severe as average temperatures increase. Money spent to protect homes before a disaster tends to pay for itself many times over through reduced repair costs later, according to research.

The tax credit would cost the government about $400 million a year, the administration estimated. By comparison, the federal government has spent almost a half-trillion dollars on disaster assistance since 2005, the Government Accountability Office reported in 2019.

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