WASHINGTON – President Joe Biden is proposing trillions in new taxes, crafting a specific hike that would affect the wealthiest investors, but not the kind of educated upper-middle-class voters who ditched the Republican Party and helped push the Democrats to win recent victories.
Biden’s plans include increasing the corporate tax rate to 28%, changing the way corporate profits are taxed at home and abroad to increase income, forcing heirs to fortunes to several million dollars to pay taxes on inherited shares and almost double the capital gains tax, but only for high incomes, treating it as regular income. In addition, he wants to increase IRS funding to increase audits of the same groups.
Equally noteworthy are those that its taxes ignore. The upper middle class, if not the elite, professionals who earn their income from salaries are largely untouched. As Biden said in his speech, “We’re going to reward work, not just wealth.”
These taxpayers have shown a willingness to support Democrats in 2018 and 2020 as the party made major gains with college-educated voters in metropolitan areas, who also served as a powerful source of donors.
“President Biden really protects the coastal professional class that helped him get elected,” said Brian Riedl, former aide to Sen. Rob Portman, R-Ohio, and now a senior fellow at the Manhattan Institute. “Those who are between $ 200,000 and $ 400,000 will be the winners of the Millionaire Redistribution.”
Biden has pledged not to raise income taxes below $ 400,000, which is an increase from that of former President Barack Obama, who set a threshold of $ 250,000 to raise taxes. taxes. Even Biden’s call to raise the top marginal tax rate to 39.6% (where it stood in 2017) is modest compared to other proposals.
Biden’s capital gains tax increase would only take effect for people who earn more than $ 1 million per year in total income. Many households with six-figure incomes could even see a tax cut from expanded child care deductions in the Covid-19 bill that Biden wants to make permanent.
According to an analysis by the Left Institute on Taxation and Economic Policy, higher taxes on income and capital gains reach less than 1% of taxpayers overall and no more than 1.2% residents of any state.
The Biden tax plan reflects the dominant progressive view of how inequality is driven: the ultra-rich are invested in the stock market, which grows faster than workers’ wages, profits made in the market are subject to lower taxes than the rate on wages. , and many of those wins are never taxed at all because their children inherit their shares and the prices are reset.
From 1978 to 2018, the richest 0.1% of Americans fell from 7% of the country’s wealth to 18%, according to a study by the University of California at Berkeley, economists Gabriel Zucman and Emmanuel Saez. At the same time, the median American wealth still hasn’t recovered from the Great Recession, and wages have taken years to rebound.
“Due to the dramatic increase in income and the concentration of wealth, substantial tax revenue can be raised simply by raising taxes on the 1 percent,” Zucman told NBC News.
Republican critics argue that Democrats are hiding the true costs of the tax increase.
A certain percentage of corporate tax is passed on to labor in the form of reduced wages and benefits – the non-partisan Tax Policy Center sets the labor share at 20%, and other estimates are higher – and investment taxes could lower 401 (k) values or discourage new startups if they go too far.
In the Republicans’ official response to Biden’s joint address to Congress on Wednesday, Senator Tim Scott of South Carolina called the plans “the biggest job-killing tax hikes in a generation.”
So far, however, Democrats see an opportunity to commit the offense politically, encouraged by multiple surveys showing that raising taxes on businesses and the wealthy is popular.
Celinda Lake, a Democratic pollster, said the wording of new taxes on the wealthy and corporations as requiring them to pay their “fair share,” a phrase Biden used in his speech, appeals to voters particularly well.
She noted that progressive political groups were advertising to counter Republican attacks that Biden would raise taxes, typically highlighting his pledge of $ 400,000.
“We tested this,” Lake said. “High-end professionals in the suburbs fear their taxes will increase less than blue-collar workers. They worry about who is going to pay for it.
Democrats are also profiting from the relative unpopularity of Trump’s tax cuts, the profits of which were concentrated upward. While the 2017 Republican law cut taxes for all income groups on average, most Americans haven’t noticed a difference in their returns, giving Democrats a chance to pitch their plan as a fix.
Democrats, however, don’t fully agree on the taxes that affect households in some high-cost areas like the Northeast.
Lawmakers are divided over whether to restore a deduction for state and local taxes, known as SALT, which was capped by the 2017 tax law. The White House, backed by progressives like Representative Alexandria Ocasio -Cortez, DN.Y., so far denies requests to remove the SALT cap.
Democratic supporters of keeping the cap say removing it would only help the rich, while those who want it limited argue it affects upper-middle-class taxpayers in expensive housing markets and hurts their budgets local. Only 9% of taxpayers would benefit from the change, according to one estimate, but that includes doctors, lawyers and computer engineers in metro blue zones that Biden has so far spared.