With less than 50 days until the election, Democratic nominee Joe Biden has perfected his stump speech, the oft-repeated top-line promises he makes to Americans across the country. Light on detail and heavy on personality, this speech is supposed to quickly tell still-undecided voters what Biden is all about and convince them that he’s who they need to lead them for the next four to eight years. So what has Biden decided to focus on? Raising taxes.
The former vice president has promised on many occasions that his “day one” action should he step into the Oval Office would be to increase the corporate tax rate and then quickly follow up with an increase for high-earners. “And folks, on day one, I will move to eliminate Trump’s tax cuts,” he said as he accepted the official nomination from the Democratic party in late July.
If enacted, Biden’s tax proposals would bring in an additional $3.375 trillion in revenue between 2021 and 2030, according to a recent analysis by the University of Pennsylvania’s Penn-Wharton Budget Model. The largest part of that increase would come from corporations. Biden has proposed raising the corporate rate from 21% to 28%, adding a 15% book tax on corporations with $100 million or greater in income, and increasing taxes on income earned by foreign subsidiaries of U.S. firms from 10.5% to 21%.
The analysis finds that under the Biden tax plan, households with incomes of $400,000 per year or less would not see their taxes increase directly.
Households with incomes above $400,000 could see their after-tax income decrease by about 17.7%. That drop comes from repealing tax cuts included in President Donald Trump’s Tax Cuts and Jobs Act (TCJA) and by adding new Social Security taxes for high earners.
The proposition of increasing tax rates on corporations and high-income earners appeals not only to a progressive group that previously supported Sen. Bernie Sanders and whom Biden is hoping to court, but to the vast majority of Americans. The most recent Gallup polling (from 2019) finds that nearly 70% of all respondents thought corporations paid too little in taxes, and more than 60% of Americans thought that upper-income people paid too little.
Though the Trump campaign is attempting to reframe Biden’s tax plan as one that would potentially hurt middle-class Americans, less than 2% of U.S. households report incomes above $400,000.
The nonpartisan Committee for a Responsible Budget estimates that middle- and low-income earners may indirectly shoulder some of the burden placed on corporations through cost increases on households ranging from 0.2% to 0.6%, but there does seem to be an appetite for what Biden is proposing. The true problem is whether or not he’ll be able to follow through.
The President has very little control over tax policy aside from exerting influence over Congress, the body that holds the purse strings.
The President does not have the authority to raise taxes through executive order, and while there may be some workarounds to lower taxes (President Trump has claimed he has the authority to reduce capital gains taxes by indexing those profits to inflation, for example), they are questionable and would almost certainly be challenged by Congress. Any action taken by a Biden administration would have to presuppose that Democrats gain control of the Senate and retain control of the House, and even then, nothing is guaranteed, said Mark Mazur, director of the Urban-Brookings Tax Policy Center.
“The popular opinion among voters is that corporations and high-income individuals aren’t paying their fair share, but there’s not so much of an appetite amongst members of Congress to do anything about that,” he said. “They don’t necessarily reflect what you’re seeing across the country, especially in the Senate.”
Biden may be able to push smaller changes to the tax code through. Tax credits for childcare, solar investment, and electric vehicles could be packaged together without much fuss, according to Mazur. But repealing sections of the TCJA or raising income caps on Social Security taxes become tricky. “You’re going to have to pair those with things people find attractive to get them passed,” he said.
The push for a new tax package could be easily shifted to the back burner by more pressing issues related to COVID-19 as well, said Mazur, who pointed to the Obama White House’s initial delay of the Affordable Care Act in order to address economic recovery in 2008.
“The incoming administration is going to take stock of the economy and see what their priorities will be, but raising taxes likely won’t be the top priority,” he said. “If the coronavirus pandemic is still the top-tier issue and if the economy is more in the doldrums, they would look to a stimulus package and wouldn’t focus on raising taxes.”
What Mazur could see happening is Biden proposing tax increases to pay for another stimulus package, but those would likely have delayed effective dates and wouldn’t take place until January 2022—a first-year priority, but not likely a first-day priority.
