President Joe Biden is planning to make a major change which make life more difficult for millions of Americans. Biden is about to go after the “first major federal tax hike” in nearly three decades.
“Unlike the $1.9 trillion Covid-19 stimulus act, the next initiative, which is expected to be even bigger, won’t rely just on government debt as a funding source,” Bloomberg News reported.
“While it’s been increasingly clear that tax hikes will be a component — Treasury Secretary Janet Yellen has said at least part of the next bill will have to be paid for, and pointed to higher rates — key advisers are now making preparations for a package of measures that could include an increase in both the corporate tax rate and the individual rate for high earners.”
Tax hikes included as part of infrastructure and job packages will likely include repealing part of former President Trump‘s 2017 tax law that benefitted corporations and wealthy individuals, the news outlet notes, citing sources close to the matter.
Biden twice teased his desire to raise taxes on everyone, including the middle class, during last year’s presidential debates.
“That’s why I’m going to eliminate the Trump tax cuts,” Biden said during his first of three debates with President Trump. And then, to accentuate the point, he said it again, “I’m going to eliminate those tax cuts.”
“His whole outlook has always been that Americans believe tax policy needs to be fair, and he has viewed all of his policy options through that lens,” Sarah Bianchi, head of U.S. public policy at Evercore ISI and a former economic aide to Biden, told Bloomberg News. “That is why the focus is on addressing the unequal treatment between work and wealth.”
The Tax Foundation reports that “the top 1 percent paid a greater share of individual income taxes (40.1 percent) than the bottom 90 percent combined (28.6 percent).”
Sources within the Biden administration told Bloomberg News that the administration was going to push for the following tax policies:
- Raising the corporate tax rate to 28% from 21%
- Paring back tax preferences for so-called pass-through businesses, such as limited-liability companies or partnerships
- Raising the income tax rate on individuals earning more than $400,000
- Expanding the estate tax’s reach
- A higher capital-gains tax rate for individuals earning at least $1 million annually. (Biden on the campaign trail proposed applying income-tax rates, which would be higher)
Economist Lawrence Summers warned that Biden’s coronavirus stimulus package could cause a serious inflation boom as soon as this year. Summers said that Biden’s stimulus “is three times as large as the projected shortfall” and “relative to the size of the gap being addressed, it is six times as large.”
“Given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply,” Summers wrote.
“Stimulus measures of the magnitude contemplated are steps into the unknown. For credibility, they need to be accompanied by clear statements that the consequences will be monitored closely and, if necessary, there will be the capacity and will to adjust policy quickly.”
Jim Bianco, president of Bianco Research, added that there was a serious threat of inflation that would damage the real economy and the stock market.
“If we get to 2.6% or 2.7% on the core [inflation] number that’s the highest level we would have in 30 years,” Bianco noted. “With the 10-year yield at 1.1% and with the stock market at a new high and a forward P/E ratio of 24 [times earnings] that’s going to be a problem for risk markets to see that kind of level of inflation even if the Fed says that they want that level of inflation.”