WASHINGTON – President Biden on Friday announced $ 3.6 trillion in tax hikes for wealthy Americans and large corporations to pay for his plans to fight climate change, reduce income inequality and significantly expand the country’s social safety net.
For the richest taxpayers, the proposals would mean higher taxes on their income, the sale of their assets, and the transfer of their assets in the event of their death. From the end of 2021, the highest individual income tax rate would rise from 37 to 39.6 percent, reversing the Trump administration’s tax cuts for the highest income taxpayers. The new rate would apply to incomes over $ 509,300 for married couples filing together and $ 452,700 for unmarried individuals.
Taxes on capital gains – the proceeds from the sale of an asset such as a stock or a boat – for anyone with an income greater than $ 1 million would be taxed as ordinary income, reducing the rate wealthy individuals pay for that money from 20 percent would increase to 39.6 percent.
Since investment income is still subject to a 3.8 percent surcharge, which helps fund the Affordable Care Act, the Conservative Tax Foundation has estimated that high-income taxpayers in some states could face tax rates on their capital gains in excess of 50 percent, the highest tax burden of its kind in a century.
Corporations would also face a higher income tax rate of 28 percent from the previous 21 percent as well as tough crackdown on profit shifting and the end of tax breaks for polluting energy companies. An increased Internal Revenue Service would stand guard to ensure the federal government can afford to prosecute wealthy tax evaders.
The tax hikes, which by some estimates are the largest in modern history, would be offset by new $ 1.2 trillion tax credits and perks to encourage green energy technology development and expand access to low-income housing and childcare . The proposals were the most detailed look yet at how the Biden government would pay for its $ 4 trillion jobs and infrastructure plans.
With the publication of the Treasury’s first “Green Paper” since 2016, the Biden administration revived a tradition that the Trump administration had given up.
Mr Biden’s tax proposals will almost certainly not be implemented as it was written by a narrowly divided Congress. Republicans who are already denouncing the plan could join some moderate Democrats.
Rep. Richard E. Neal, Democrat of Massachusetts and chairman of the House Ways and Means Tax Committee, did not mention any specific tax proposals in his praise for the budget.
“The Democrats will carefully examine the government’s proposals and look forward to working together to achieve our common goals,” Neal said in a statement.
Republican lawmakers have already announced that they will oppose amendments to the 2017 Tax Cuts and Jobs Act, President Donald J. Trump’s major legislative achievement.
The magnitude of the tax increases proposed by Mr Biden has appalled some Republican economists.
“These are really steroid taxes and spending,” said Douglas Holtz-Eakin, president of the American Action Forum and former chief economist on President George W. Bush’s Economic Advisory Council, who added that the average tax rate over 10 years would be “higher than anyone in 10 -Year period in modern history “.
In addition, the change in capital gains tax would take place retrospectively to April 2021 in order to prevent a flood of asset sales before the tax increase came into force. A separate proposal applying income tax to unrealized gains for assets that are carried over in the event of death would go into effect on December 31st.
The country’s largest business lobby group, the US Chamber of Commerce, attacked the tax proposals on Friday.
“Perhaps the government’s proposed tax hikes for employers and investments are the only thing that could reverse the US economic recovery alongside a resurgence of the global pandemic,” said Neil Bradley, the group’s chief policy officer.
“The capital gains tax would hit two-thirds of investments,” he added. “The corporate tax would hit 1.4 million small businesses and impose the highest tax rate in the industrialized world on America’s largest corporations.”
A key issue that is still being debated in the White House and the Treasury is how to deal with the middle income tax cuts that were passed in 2017 and are due to expire in 2025.
With Mr Biden promising that Americans who earn less than $ 400,000 a year would not raise taxes, some Republicans have the indecision as of Friday Sign that he was breaking his promise.
The Treasury Department’s report also avoided the controversial issue of raising the cap on state and local tax deductions, which was capped at $ 10,000 under the 2017 Tax Act. Many House Democrats from high-tax countries want the withdrawal extended, although critics argue that it would benefit the rich.
The Biden government offered some additional tax breaks to low- and middle-income taxpayers and proposed that the child and dependent tax credit, which was passed as part of the American Rescue Plan that Mr. Biden signed in March, be made permanent. It also suggested extending the recently increased child tax credit to 2025. The White House believes that these provisions would lead to a significant reduction in child poverty.
Corporations would bump up much of Mr. Biden’s proposed budget of $ 6 trillion.
If tax policy were passed, the energy industry would have some of the most serious consequences. Treasury officials said they went through tax legislation to remove preferential treatment for the fossil fuel industry. Meanwhile, the administration is offering more than $ 300 billion in incentives to expand energy efficiency and renewable energies in residential buildings.
The government also proposed a tax credit for homeowners and businesses in disaster-hit areas who take steps to protect their property from future floods, fire, or other disasters. The loan would be 25 percent of the cost of this work, up to a maximum of $ 5,000.
The proposal takes into account the growing number of disasters, which become more frequent and severe as average temperatures rise. Money spent protecting homes from disaster tends to pay off later in the form of lower repair costs. according to the research results.
The tax credit would cost the government about $ 400 million annually, the government estimated. In comparison, the federal government has almost half a trillion dollars on disaster relief since 2005, the Government Accountability Office reported in 2019.
Congress is not the only obstacle that could hinder Mr Biden’s tax agenda. The proposed 28 percent corporate tax rate would still be lower than the 35 percent rate some companies paid prior to Trump’s tax cuts, but implementation of that rate is tied to negotiations on a global minimum corporate tax that is being opposed by tax havens like Ireland .
The fragile talks, which could end as early as July, are designed to deter American companies from sending work – and profits – overseas. Treasury officials admitted that some of the expected revenue is difficult to calculate. A mechanism to prevent the US tax base from eroding has been budgeted at nearly $ 400 billion in revenue over a decade, but it would depend on how other countries set their own tax policies.
Treasury Secretary Janet L. Yellen is traveling to London next week for a meeting of the Group of 7 Treasury Ministers. The tax talks are expected to be the top priority.
Countries around the world are watching closely as Mr. Biden’s tax proposals are received in the United States as they decide whether to join Ms. Yellen’s global minimum tax.
“There is a surprising connection between their national tax policy and their international tax negotiations,” said Lilian V. Faulhaber, professor at Georgetown University Law Center.
Christopher Flavelle Reporting contributed.