Fresh off a major success with the $1.9 trillion American Rescue Plan, the Biden administration is preparing to move ahead with an ambitious infrastructure, jobs and clean energy package that could be worth as much as $4 trillion and—crucially—financed in part by major tax hikes in addition to deficit spending.
Bloomberg reported Monday that Biden’s advisors are preparing for increases to the corporate tax rate and the individual tax rate for high earners to help pay for the forthcoming spending package—these would be the first major tax hikes since 1993.
The tax changes will likely include the repeal of parts of President Trump’s 2017 tax cut legislation.
They could include raising the corporate tax rate from 21% to 28%, reducing tax benefits for pass-through businesses, raising the income tax rate for individuals earning more than $400,000, expanding the estate tax, and raising the capital gains tax for people earning more than $1 million per year, Bloomberg reported, citing people familiar with the plan.
The Treasury Department is hoping to create a global minimum tax on multinational corporations, the Washington Post reported Monday, which if successful could also help finance Biden’s ambitious policy agenda.
In a weekend note to clients, Goldman Sachs said it expects the new spending package to include tax incentives for traditional and green infrastructure alongside the higher corporate and capital gains tax rates that it expects will finance up to about $1 trillion of the new bill.
Biden is likely to face resistance to all these tax changes from lawmakers, especially Republicans who will undoubtedly balk at the repeal of parts of former President Trump’s major policy achievement, and possibly from moderates in his own party.
159,000. That’s how many jobs raising the corporate tax rate from 21% to 28% would cost, according to a recent analysis from the Tax Foundation. The Tax Foundation also estimates the hike would reduce long-run economic output by 0.8% and reduce wages by 0.7%.
President Biden signed the $1.9 trillion American Rescue Plan into law last week, bringing the total stimulus spending authorized by the U.S. government up to $5.4 trillion. The package cleared Congress without a single Republican vote, and many in the GOP opposed it on the grounds that it would cause the federal deficit to balloon to unsustainable levels. Sen. Joe Manchin, a moderate Democrat from West Virginia, told Axios earlier this month that all that government debt could lead the United States into “a tremendous deep recession that could lead into a depression if we’re not careful.” Manchin has said he won’t support Biden’s massive infrastructure bill if it doesn’t include input from Republicans. He’s also said that he’ll push for the package to be completely paid for, Axios reported.
The $1.9 trillion stimulus plan Biden signed into law contained $60 billion in tax hikes for big corporations and the wealthy, despite expectations that lawmakers would not seek to raise taxes while the economic recovery is still so fragile. Politico reported that the tax changes Democrats included—including stricter limits on pass-through business offsets, expanding restrictions on executive compensation and reducing flexibility for interest expenses for multinational corporations—“had the political benefit of being arcane” and were not likely to draw much attention.
What To Watch For
Treasury Secretary Janet Yellen has said that any tax increases enacted under Biden wouldn’t take effect immediately. The tax hikes that would pay for additional federal spending on infrastructure or education would “probably phase in slowly over time,” she told CNBC last month.