Joe Biden has finally answered the question of how we’re going to pay for his long list of spending proposals: with the biggest tax hike since the Bill Clinton administration.
And that’s no April Fools joke.
Biden just passed through a $1.9 trillion coronavirus relief bill, and it now pushing for a $2.25 trillion infrastructure bill (that some Democrats want to be as big as $10 trillion). And after that, yet another coronavirus relief bill is being floated.
As the Washington Examiner’s W. James Antle III writes:
To help pay for his latest $2+ trillion spending package, President Joe Biden on Wednesday proposed the first major tax increase since 1993.
That’s when President Bill Clinton signed omnibus legislation that raised the gasoline tax and increased the top marginal income tax rate by one-third. The ensuing backlash cost Democrats control of Congress and swept in the first Republican majority in the House in 40 years.
Biden, whose economic team grew to fear too much additional deficit spending would prove destabilizing by spiking interest rates and boosting federal debt payments, is hoping the tax increases will be seen as skewed enough against the wealthy and corporations to avoid any broad-based resistance.
The proposed tax hikes include:
- A hike in the corporate tax rate from 21% to 28%
- Increasing the top marginal tax rate to 39.6%
- Taxing unrealized capital gains at tax
- Introducing a 15% minimum tax on big companies (regardless of credits and deductions)
Earlier floated proposals such as increasing the tax gas or introducing a vehicle mileage tax have been shelved – for now at least.
Members of the administration have continued to maintain that their tax hikes won’t affect anyone earning over $400k per year, even after Press Secretary Jen Psaki attempted to clarify that the $400k threshold applies to households, not individuals. Some circling back is needed there for the sake of clarity.
There’s the reason for doubt that these tax hikes would be enough to fund Biden’s infrastructure package – at least not for a while. Repealing the Trump tax cuts on only the wealthy would recoup about $150 billion in revenue per year. The 15% minimum tax (if it were applied on all companies earning above $100 million) would raise approximately $202.7 billion over the next ten years, and the hike in the corporate tax rate would raise about $391.6 billion over a ten year period.
Biden has previously called for increasing the long-term capital gains tax and taxing dividends as ordinary income for those earning above $1 million but hasn’t proposed it to fund infrastructure. If he were to implement those policies alongside the corporate tax hike it would create an effective 62.7% tax rate on corporate income, the highest in the OECD.