Presumptive Democratic presidential nominee Joe Biden has laid out the key points in his economic platform—and it’s one that would have been considered verboten in mainstream politics just a few months ago on both sides of the aisle.
He says he’s going to raise taxes.
The former vice president told donors during a digital fundraiser in late June that he was “going to get rid of the bulk of Trump’s $2 trillion tax cut.” In his now-typical Biden tough talk, he added that “a lot of you may not like that, but I’m going to close loopholes like capital gains and stepped-up basis.”
The changes come as Biden partners with Vermont senator and former presidential competitor Bernie Sanders to fold progressive views into his campaign platform and hopefully attract far-left voters this November. Biden quickly followed his announcement with an 110-page plan written by a task force stacked with surrogates from both camps.
The group, cochaired by former Secretary of State John Kerry and Rep. Alexandria Ocasio-Cortez, worked to find common ground and create a new economic policy platform for Biden’s presidential campaign.
During his second presidential campaign, Sanders had one of the most aggressive stances toward taxing the wealthy. In addition to closing loopholes for the wealthy, he said that he would also increase taxes on the middle class, arguably one of the most taboo statements to make in modern-day political campaigning.
An analysis of the proposed tax and spending plans put forth by the candidates during the 2020 Democratic primary found that Sanders wanted to bring in more than $27 trillion in tax revenue over 10 years compared to Biden’s proposed plan of less than $4 trillion.
And now, in a dramatic change of direction, Biden is saddling up to Sanders in an attempt to cocreate policies that appease a wider base of Democratic voters.
“We will work to reform the tax code to be more progressive and equitable, and reduce barriers for families who qualify to benefit from targeted tax breaks,” wrote the task force. “Our tax system has been rigged against the American people by big corporations and their lobbyists, and by Republican politicians who dole out breaks to their biggest donors while leaving families to struggle.”
Here are five key points in Biden’s new economic plan.
1. Tax wages and capital at the same rate.
President Donald Trump’s $2 trillion tax plan, the Tax Cuts and Jobs Act of 2017 (TCJA), created a tectonic shift in the way sources of income are taxed in the United States. After Trump’s changes, capital (things like stocks, real estate, and companies), which the rich tend to accumulate and hold their wealth in, was taxed less than income from labor. In 2018, billionaires paid a lower tax rate than working class Americans, a first.
The current tax system is progressive, meaning income is taxed between 10% and 37% depending on how much a worker brings in. Short-term capital gains (on assets held for less than one year) are also taxed on that sliding scale, but when that capital is held onto for longer than a year, gains are given preferential rates of 0% to 20%.
The Biden platform recommends ending those preferential rates.
“A guiding principle across our tax agenda is that the wealthiest Americans can shoulder more of the tax burden, including in particular by making investors pay the same tax rates as workers and bringing an end to expensive and unproductive tax loopholes,” the report said.
Taxes don’t need to be paid on appreciating investments like stocks unless they’re “realized” or sold. That means that wealthy Americans can sit tight as their investments grow and strategically wait to sell them in a year when they have capital losses to offset said gains.
Or, if they want to pass the assets down to their children when they die, neither parent or child will owe capital gains tax on the assets’ growth in value (more on that later).
2. Increase taxes on the wealthiest Americans by limiting unequal and unproductive tax expenditures.
Wealthy Americans benefit significantly in their taxes from expenditures that provide exemptions, deductions, and credits to specific groups and for specific activities. A recent study by the Congressional Budget Office (CBO) found that the 10 most expensive individual expenditures, which add up to about $12 trillion in lost revenue over a decade, almost entirely favor the rich.
Those expenditures include the exclusion of employers’ contributions for employees’ medical insurance premiums and medical care, a preferential rate structure for capital gains and dividends, benefits for tax-qualified retirement saving accounts, exclusion of capital gains at death, and deductions for charitable contributions.
These expenditures are, in theory, supposed to help promote policy goals. Funds for college expenses can grow tax-free in special savings accounts, for example. But creating an “upside-down,” expenditure model gives the largest subsidies to high-income Americans, the people who are least likely to need financial incentives to engage in those activities.
Nearly 60% of all tax expenditure benefits go to those in the top 20% of income earners, according to analysis by the Center on Policy and Budget Priorities. About one-quarter of the benefits go to those in the top 1%.
In their paper, the Biden-Sanders task force recommended increasing taxes on the wealthiest Americans by limiting tax expenditures “as a means of strengthening tax progressivity and paying for investments in U.S. productivity.”
3. Increase corporate tax rates.
As part of his tax plan, Trump cut corporate tax rates in the U.S. from 35% to 21%—a reduction of 40%. The President claimed that this cut would trickle down and increase household income by $4,000 on average.
But a recent study by Brookings found that the reduction in revenue collected from businesses did not pay for itself, as the President initially claimed it would. Instead, corporate tax revenues fell 31% in the first year after the cut was passed, adding to the deficit.
Americans did not see a trickle-down benefit in their paychecks, either. Worker pay remains about the same as it did before, and bonuses handed out at the beginning of the tax cut did not last beyond a quarter or two.
“Corporate tax rates, which were cut sharply by the 2017 Republican tax cut, must be raised, and ‘supply-side’ or ‘trickle-down’ tax cuts must be rejected,” the task force’s report said.
Biden has said he will raise corporate tax rates to 28%, still well below the pre-TCJA rates. The Tax Foundation General Equilibrium Model estimates that the proposal would raise about $1.5 trillion between 2020 to 2029, on a conventional basis.
4. Increase estate taxes back to their norm.
Before the TCJA, any assets from estates (cash, real estate, stocks, and other assets) valued at less than $5.49 million (or about $11 million for couples) were exempt from being taxed when passed down from deceased persons to their heirs. Anything over that threshold is taxed at about 40%.
Trump more than doubled the exemption in 2017 to $11.4 million per person or about $22.8 million for couples.
Many Republicans argue that estate taxes hurt ordinary Americans attempting to pass down property to their families. Farmers in particular, they say, own vast swaths of highly valued land.
But an analysis by the Tax Policy Center estimated that in 2017, before the new rules were implemented, only 50 farms owed money under the estate tax and that the tax worked out to an effective rate of less than 6% on each estate.
The change instituted by Trump dropped the number of estates in the United States being taxed from an estimated 5,500 to 1,700 in 2018, but tax revenues from the estate tax dropped by only about a third, from $20.4 billion to $13.6 billion.
5. Expand the Child and Dependent Care Tax Credit.
The task force recommends expanding the Child and Dependent Care Tax Credit (CDCTC) “to provide a fully refundable, advanceable tax credit.”
The credit is meant for working parents who pay out-of-pocket expenses for childcare. There’s no income restriction on claiming the credit, but those who bring in less money are able to claim a higher percentage of expenses, up to $3,000 per dependent or up to $6,000 for two or more dependents. That includes the costs associated with day care, summer camp, after- and before- school programs, and babysitters.
Because the program is currently nonrefundable, it can only be used to offset income tax owed, so low-income families who owe very little or no tax do not get to make use of it. Under the current structure, only about 12% of families with children benefited from the CDCTC in 2020, according to the Tax Policy Center. Biden’s platform would change that, opening up the rebates to all families with dependent families, regardless of income.
