Remember tax hikes? They were a big part of Joe Biden’s pitch to voters when he ran for president in 2020. Biden vowed to undo some of the Trump tax cuts and make businesses and the wealthy pay their “fair share.”
America’s fat cats are an evasive target, it turns out. Biden’s proposed tax hikes weren’t drastic. He wanted to raise the corporate rate from 21% to 28%, still far below the 35% rate it was at before Republicans cut the business tax in 2017. Biden also would have raised the top personal income tax rate from 37% to 39.6%, putting the top bracket back where it was before Republicans lowered it. There were other Biden proposals for raising capital gains and inheritance taxes on the wealthy. His plan stipulated that nobody earning less than $400,000 a year would face a tax hike.
Voters broadly support those types of tax hikes, to pay for other programs and narrow the annual deficit. Yet Congress can’t get them done. “Are taxes going up? Quite simply, no,” Libby Cantrill, head of public policy for investing firm PIMCO, wrote in a recent analysis. "The sweeping tax increases that were envisioned by Biden as recently as two months ago, including the rollback of most of the Trump tax cuts, are unlikely to occur. Unless you make an adjusted gross income of more than $10 million (and congratulations if you do), your income taxes are not going up.”
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The absence of substantial tax hikes limits what Democrats can pack into the “build back better” legislation they hope to pass soon, because there’s not much new revenue to pay for social-welfare and green-energy programs included in the bill. Biden has vowed to “pay for” any new spending programs with offsetting tax hikes, and while that’s a term of art in Washington, DC, the Biden bill has shrunk along with the available revenue. Legislation that could have entailed more than $3 trillion in new spending over a decade is now down to around $1.7 trillion — and even that may never pass.
There are some narrow tax hikes in the current BBB legislation. There would be a minimum 15% tax on about 200 large companies, along with a 1% tax on stock buybacks and a modest change in international business taxation. There would also be a surtax on the superwealthy, starting with incomes of $10 million per year. The Congressional Budget Office estimates those tax hikes would raise $1.27 trillion during the next 10 years, or $127 billion per year. Biden’s original tax plan would have raised about $4.3 trillion during the same period, or $430 billion per year, according to the Tax Policy Center. That’s a downward revision of 70%.
The whole bill could be doomed
Even that may never happen. The House of Representatives passed the BBB in November, but it’s stuck in the Senate, where a couple of moderate Democrats have raised objections. Sen. Kyrsten Sinema of Arizona led the charge to remove most business and income-tax hikes. Sen. Joe Manchin of West Virginia is concerned about the overall cost, and the gimmicky nature of including costly provisions, such as an expanded child tax credit, for just one year, forcing future showdowns over renewing those benefits again and again. With a one-vote majority in the Senate, Democrats can’t lose a single vote.
Biden was hoping he’d have a bill to sign by the end of 2021. That now looks unlikely. Congress could pass it in early 2022, but all Senate Republicans will oppose it and it’s not clear how Democrats will resolve their own differences. If there’s no deal by March, the whole thing could be doomed, since it gets harder to pass contentious legislation as elections such as next year’s November midterms draw closer.
There’s one major beneficiary of the disappearing tax hikes: financial markets. Many analysts felt markets could withstand most of Biden’s original tax plan, given that stocks did fine when the corporate rate was all the way up at 35%. Now, there’s no broad increase in the corporate tax rate, and the minimum corporate tax will only apply to the most profitable companies. Some companies will get around a new tax on buybacks by raising dividends instead. After Biden took office, market analysts churned out reams of projections on how the Biden tax plan would affect specific sectors and companies. Now, there’s barely any chatter about the impact of new taxes.
Voters may be fine with Biden’s shrinking agenda, as well. While Americans support higher taxes on the wealthy in general, they get nervous when Congress begins to craft specific laws — and they’re not thrilled about "build back better." Support for the bill hovers around 40%, which is very weak for legislation that would affect millions of Americans for years. Biden has already signed major relief and infrastructure bills, and that may seem like enough, for now. Raise taxes some other time.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.