President Biden is planning the first major federal tax hike since 1993 to help pay for the long-term economic program designed as a follow-up to his pandemic-relief bill, according to people familiar with the matter.
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. 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.
With each tax break and credit having its own lobbying constituency to back it, tinkering with rates is fraught with political risk. That helps explain why the tax hikes in Bill Clinton’s signature 1993 overhaul stand out from the modest modifications done since.
For the Biden administration, the planned changes are an opportunity not just to fund key initiatives like infrastructure, climate, and expanded help for poorer Americans, but also to address what Democrats argue are inequities in the tax system itself. The plan will test both Biden’s capacity to woo Republicans and Democrats’ ability to remain unified.
“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,” said Sarah Bianchi, head of US public policy at Evercore ISI and a former economic aide to Biden. “That is why the focus is on addressing the unequal treatment between work and wealth.”
While the White House has rejected an outright wealth tax, as proposed by progressive Democratic Senator Elizabeth Warren, the administration’s current thinking does target the wealthy.
The White House is expected to propose a suite of tax increases, mostly mirroring Biden’s 2020 campaign proposals, according to four people familiar with the discussions.
The tax hikes included in any broader infrastructure and jobs package are likely to include repealing portions of President Donald Trump’s 2017 tax law that benefit corporations and wealthy individuals, as well as making other changes to make the tax code more progressive, said the people familiar with the plan.
White House economist Heather Boushey underlined that Biden doesn’t intend to boost taxes on people earning less than $400,000 a year. But for “folks at the top who’ve been able to benefit from this economy and haven’t been this hard hit, there’s a lot of room there to think about what kinds of revenue we can raise,” she said in a Bloomberg TV interview Monday.
An independent analysis of the Biden campaign tax plan done by the Tax Policy Center estimated it would raise $2.1 trillion over a decade, though the administration’s plan is likely to be smaller. Bianchi earlier this month wrote that congressional Democrats might agree to $500 billion.
The overall program has yet to be unveiled, with analysts penciling in $2 trillion to $4 trillion. No date has yet been set for an announcement, though the White House said the plan would follow the signing of the COVID-19 relief bill.
An outstanding question for Democrats is which parts of the package need to be funded, amid debate over whether infrastructure ultimately pays for itself — especially given current borrowing costs, which remain historically low. Efforts to make the expanded child tax credit in the pandemic-aid bill permanent — something with a price tag estimated at more than $1 trillion over a decade — could be harder to sell if pitched as entirely debt-financed.