Biden’s big jobs plan will actually hurt low-income and minority Americans’ chances of owning a home

compromises buying home
The Biden administration’s proposed American Jobs Plan would create new hurdles for minority and low-income first-time homebuyers.

  • The American Jobs Plan would make home ownership less accessible for low-income and minority home buyers.
  • If you can’t put 20% down when you buy a house, you have to pay mortgage insurance.
  • Biden’s plan would make private mortgage insurance more expensive.
  • Jerry Theodorou is the director of the Finance, Insurance and Trade Policy Program at the R Street Institute.
  • This is an opinion column. The thoughts expressed are those of the authors.
  • See more stories on Insider’s business page.

Homeownership is a pillar of the American dream. Last year, the pandemic made many Americans realize they wanted that dream sooner rather than later. Many turned to Redfin and Zillow, swiping through home after home as travel was restricted. News reports quickly followed of surging housing prices and increasing demand as renters turned into buyers and people looked for more living space.

On the surface, this news sounds like a boon to the American economy. Owning a home builds equity and intergenerational wealth, and it can be a cushion against financial setbacks. Yes, there are risks, as shown from the 2008 financial crisis, but American homeownership is still on the rise.

It baffles the mind, then, that as the economy continues to recover, the Biden administration’s proposed American Jobs Plan would create new hurdles for minority and low-income first-time homebuyers. In an effort to pay for the plan, the government would raise the cost of private mortgage insurance, potentially squashing the dreams of millions of Americans.

Inequity in homeownership

Minority and low-income families would be hit hardest by the new legislation because 40% of loans with private mortgage insurance are for families with annual incomes below $75,000, and 60% go to first-time homebuyers. The disparity between homeownership by Black families and white families is already significant – 42.3% of Black families own homes compared with 72.2% of white families. The Biden plan would only widen this gap.

Home buyers can pay as little as 3% of a home purchase price as a down payment. But for those who supply less than 20%, mortgage insurance must be purchased to protect lenders against a borrower defaulting. But private mortgage insurers must have sufficient financial strength to withstand the inevitable peaks and valleys in the cyclical housing market. Since the 2008 financial crisis, new regulations have required insurers to maintain sufficient capital levels to survive another downturn.

Insurers have strengthened their capital base by purchasing reinsurance – insurance for insurance companies. Think of it like a financial shock absorber that spreads risk globally and acts as a bulwark against crippling losses from catastrophic events. Reinsurance is so important for mortgage insurers that in 2020, US insurers shared more than 30% of their mortgage insurance risk with non-US sources. Bermuda reinsurers alone, for example, accounted for just over 50% of such cessions.

The failure of the Jobs Plan

This is where the American Jobs Plan enters the picture. First, it would increase the corporate tax rate from 21% to 28%. Second, it would impose a global minimum tax rate that dilutes the benefits of Bermuda reinsurance. For mortgage insurers, this will inevitably lead to higher prices. Currently, Bermuda reinsurers do not impose taxes on corporate income, allowing mortgage insurers to benefit from the availability of low-cost mortgage insurance.

These actions seem far upstream from the average home buyer, but the effects will trickle down quickly. A higher corporate tax rate for mortgage insurers will eat into their profits. To recoup these lost dollars, they will raise required mortgage insurance rates for all home buyers who put down less than 20%. Simple financial modeling suggests that rates could rise by approximately 10% overall, a significant increase for borrowers, pushing homeownership further away for those of lesser means.

The math is fairly straightforward. Mortgage buyers with excellent credit scores – more than 740 – who put 3% down on a $200,000 home pay approximately $9,500 for the mortgage insurance over eight and half years until the loan-to-value ratio drops below 80%. Borrowers with credit scores between 680 and 699, slightly below the national average, with the same down payment on the same home pay approximately $19,800 in mortgage insurance. Under Biden’s plan, those costs could increase by as much as 10%.

If the American Jobs Plan becomes law, the cost of insurance will rise, potential homebuyers will be affected directly, and, thus, the economy overall.

The Biden administration should stop building barriers to homeownership and instead support policies that will help first-time homebuyers, particularly the low-and-moderate- income families, especially in today’s low interest rate environment. One way to begin is to reconsider the proposed anti-free trade, anti-fair trade, globally-mandated minimum tax policies. The American dream depends on it.

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Amazon could sidestep new G7 corporate tax measures because its profit margins are below a 10% threshold

Jeff bezos
Amazon CEO Jeff Bezos.

  • Amazon could escape new G7 measures to further tax tech giants, The Guardian reported.
  • Amazon’s slim profit margin could put it below a 10% threshold being considered for the tax.
  • Treasury Secretary Janet Yellen has said separately that Amazon would be caught by the new measures.
  • See more stories on Insider’s business page.

Amazon may be able to avoid new taxes agreed by the G7 because its profit margins are below a 10% threshold, The Guardian reported.

The G7 group of wealthy nations announced a two-pronged agreement Saturday that tackles the tax contributions of the world’s biggest tech companies, including Amazon, Facebook, Google parent Alphabet, and Apple.

The deal seeks to introduce a 15% global minimum corporate tax rate. It also aim to address one of the key ways that global tech giants keep tax contributions to a minimum – by declaring corporate profits in tax havens, away from the countries where much of their business is done.

One criterion under discussion for selecting which companies to further tax is their profit margin, with a 10% threshold being discussed.

Above that margin, 20% of whatever profit they declare would be reallocated – and taxed – in the countries where they make sales.

This second aspect of the deal is where Amazon may have an advantage, The Guardian reported. Despite colossal sales, Amazon’s profit margin is low because of its strategy of aggressive growth and reinvestment, as Vox reported.

“Our profits have remained low given our continued investments across Europe,” the company wrote in a May blog post, which emphasizes the “millions” of dollars paid there by the company.

According to The Guardian, Amazon’s profit margin in 2020 was 6.3%, significantly below the 10% threshold.

Richard Murphy, visiting professor of accounting at Sheffield University in the UK, told the paper that the system could be “easily gamed.”

“This could turn out to be a false hope unless they get the detail right,” he told the paper.

G7 Finance Ministers
G7 finance ministers meet in London on June 5, 2021.

Asked on Saturday whether Amazon and Facebook would be captured by the G7 proposal, US Treasury Secretary Janet Yellen said: “It will include large profitable firms and those firms, I believe, will qualify by almost any definition,” Reuters reported.

In a statement sent to Insider, a spokesperson for Amazon said: “We believe an OECD-led process that creates a multilateral solution will help bring stability to the international tax system.

“The agreement by the G7 marks a welcome step forward in the effort to achieve this goal. We hope to see discussions continue to advance with the broader G20 and Inclusive Framework alliance.”

Big tech companies reacted positively to the G7 deal in a flurry of statements on Saturday, with Facebook saying it “welcomes” the deal, and a Google spokesperson telling Reuters the company “strongly supports” the measure.

The global minimum tax rate also has its critics, such as Oxfam. The campaign group said in a statement to Reuters that the G7 is “setting the bar so low that companies can just step over it.”

The global minimum “is similar to the soft rates charged by tax havens like Ireland, Switzerland and Singapore,” the Oxfam statement said.

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G7 leaders reach ‘historic’ agreement to crack down on tech giants by forcing Amazon, Facebook, and others to pay more tax

G7 Finance Ministers
G7 finance ministers meet in London on June 5, 2021.

  • The G7 group of wealthy nations has reached a “historic agreement” on taxing multinational companies.
  • The agreement will ensure that tech giants pay more tax where they operate.
  • It also pledges to introduce a global minimum corporate tax rate of 15 percent.
  • See more stories on Insider’s business page.

Finance ministers for some of the world’s wealthiest nations have reached a “historic agreement” to tackle tax abuses by internet giants and to introduce a global minimum corporate tax rate of 15 percent.

“I am delighted to announce that today after years of discussion G7 finance ministers have reached a historic agreement to reform the global tax system,” Rishi Sunak, the UK’s Chancellor of the Exchequer, said after a Group of Seven (G7) meeting in London.

“To make it fit for the global digital age, but crucially to make sure that it is fair so that the right companies pay the right tax in the right places and that’s a huge prize for British taxpayers,” Sunak added.

Read more: The director of wealth management at a $12 billion firm shares 3 stocks set to thrive when corporate taxes rise – and says all of them have at least 15% upside from current levels

The deal – agreed on by Canada, France, Germany, Italy, Japan, the UK, and the US – will ensure that multinationals pay more tax where they operate, the Financial Times said. This is to avoid companies setting up local branches in countries with low corporate tax rates and then declaring their profits there, the BBC reported.

The “first pillar” of the agreement would apply to global companies with at least a 10 percent profit margin, the BBC said. A 20 percent tax on any profit above that margin would be reallocated and taxed in the countries where they make sales, Sunak said on Twitter.

It is likely to affect tech giants, including Amazon, Facebook, and Google, Metro reported.

The “second pillar” is a commitment to introducing a global minimum corporate tax rate of 15 percent. This will disincentivize major companies from declaring profits in tax havens, the Financial Times said. It will also stop countries from trying to undercut each other.

The latter is seen as a big win for the Biden administration. President Joe Biden’s infrastructure plans include a hike in the country’s corporate tax rate, Insider’s Juliana Kaplan reported. If rates are more uniform around the world, as this commitment pledges, it could encourage multinational companies to remain in the US, even with higher taxes, Kaplan said.

Secretary of the Treasury Janey Yellen said on Twitter that the global minimum tax will “end the race-to-the-bottom in corporate taxation” and would “level the playing field” for business.

The “Silicon Six”– Microsoft, Amazon, Facebook, the Google owner Alphabet, Netflix, and Apple – have long been accused of avoiding paying tens of billions less tax over the past decade on trillions of dollars of revenue than the figures cited in annual financial reports would seem to entail, according to the Guardian.

Nick Clegg, Facebook Vice President for Global Affairs, told Insider via email: “Facebook has long called for reform of the global tax rules and we welcome the important progress made at the G7. Today’s agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system. We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places.”

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Biden has reportedly offered to ditch his rollback of Trump-era tax cuts in a major infrastructure concession to GOP

Joe Biden Shelley Moore Capito in Oval Office White House
President Joe Biden meets with Sen. Shelley Moore Capito at the White House.

  • Biden has reportedly made a major concession to drop a corporate tax hike in infrastructure talks with Republicans.
  • Instead, he’d put in place a 15% minimum corporate tax.
  • Republicans have barely budged in the negotiations so far. They’re schedule to speak again Friday.
  • See more stories on Insider’s business page.

President Joe Biden has reportedly floated creating a minimum tax for corporations rather than pursuing his proposed corporate tax rate increase, according to The Washington Post.

The move comes as the president continues a fourth week of negotiations with the GOP, who have ruled out any alterations to the 2017 Republican tax cuts. Biden had proposed raising the corporate rate from to 28% from its current level of 21% enacted under President Donald Trump’s tax law.

Instead, Biden put forward a 15% minimum corporate tax as a possible solution, a source familiar with the discussions told the Post. That tax would take aim at corporations paying little to no taxes. Biden has previously cited a report from the left-leaning Institute on Taxation and Economic Policy indicating 55 major American companies paid nothing in federal income taxes in the past year.

The White House did not immediately respond to a request for comment.

The move represents a sharp break from Biden’s previous fiery rhetoric on the need for increased corporate taxes; Still, some centrist Democrats like Sen. Joe Manchin of West Virginia are pushing for a rate closer to 25%, rather than 28%. Biden wants to offset his proposed infrastructure spending with tax hikes on corporations and the country’s highest-earners.

Republicans last week led by Sen. Shelley Moore Capito of West Virginia pitched an infrastructure plan with only a modest amount of new spending above what Congress has already approved. Both parties are at loggerheads over the size and scale of the package, along with how to pay for it. Republicans are seeking to finance their spending with coronavirus relief money, which Democrats are rejecting.

It also comes amidst a push by the US to enact a global minimum corporate tax rate, which would seek to standardize taxes for multinational companies and prevent them from fleeing to countries with lower levies. The latest figure reported for that rate is also 15%, not the expected 21%.

The White House also reportedly wants to increase tax enforcement on corporations and high-earners.

“It’s just not fair. It’s not fair to the rest of the American taxpayers,” Biden previously said in a speech defending the corporate tax rate increase. “We’re going to try to put an end to this. Not fleece them – 28%. If you’re a mom, a dad, a cop, firefighter, police officer, etc., you’re paying close to that in your income tax.”

Capito and Biden are scheduled to speak again on Friday.

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Elizabeth Warren says the GOP infrastructure plan is not a ‘serious’ counteroffer and leaves out women

senator elizabeth warren
Sen. Elizabeth Warren.

  • GOP Senators introduced a $928 billion counteroffer to Biden’s $2.25 trillion infrastructure plan.
  • Massachusetts Sen. Elizabeth Warren said their plan is not a “serious” offer and leaves out women.
  • She, along with other Democrats, also criticized the GOP idea to repurpose stimulus aid to fund infrastructure.
  • See more stories on Insider’s business page.

A group of Republican senators unveiled their $928 billion counterproposal to President Joe Biden’s infrastructure plan, increasing the price tag from their first $568 billion counteroffer.

Massachusetts Sen. Elizabeth Warren was not impressed with this new plan.

“I don’t really think this is a serious counteroffer,” Warren told MSNBC following the release of the plan.

The past few weeks in the White House have been filled with Oval Office meetings attempting to get Republicans on board with Biden’s $4 trillion infrastructure plan. After a GOP group – led by Sen. Shelley Moore Capito of West Virginia – met with Biden to discuss their original $568 billion proposal, the White House countered that with a $1.7 trillion proposal, down from its initial price tag of $2.25 trillion on the American Jobs Plan.

And on Thursday, the Republicans brought a $928 billion offer to the table, largely focused on funding for physical infrastructure, and only a $257 billion increase in new government spending beyond what Congress has already authorized.

Warren criticized the plan for lacking a clear funding method and only suggesting repurposing already allocated stimulus funds.

“First of all, they don’t have pay-fors for this, it’s not real,” Warren said. “They have this illusory notion of how we’re going to take money that’s already been committed to other places and other spending.”

She added that women are also left behind in this package because while Biden’s American Families Plan proposed significant investments in childcare, the GOP offer does not allocate any funding toward care-economy measures.

“Millions of women are out of the workforce right now and one out of four says the reason [for that]: I can’t get childcare,” Warren said. “This is our chance to expand our idea of what infrastructure means. Give women who want to work a real chance in the workplace,” she added.

Other Democratic lawmakers joined Warren in criticizing not only the GOP plan, but the idea of using stimulus aid to pay for it instead of the corporate tax hikes Biden had originally proposed.

“They’re talking about using the child tax credit to pay for this,” Colorado Sen. Michael Bennet told reporters. “This is a significant tax cut for working people. Ninety percent of America’s kids – more than that – are going to benefit. It’s going to cut childhood poverty almost in half so I really don’t understand their desire to raise taxes on working people.”

And Insider reported that 14 state treasurers are urging Congress to refrain from repurposing stimulus money to fund infrastructure, given that the aid is much needed to sustain economic recovery for state and local governments.

“This is called a jobs bill. It’s infrastructure and jobs,” Warren said. “So long as we’re investing in roads and bridges and lots of concrete, about 90% of those jobs are going to be for men. But when we’re talking about childcare, those jobs are nearly all going to women and those jobs today pay far too little. We have a chance to turn those into good paying, professional jobs.”

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Biden’s budget will reportedly cost $6 trillion while running a $1.3 trillion deficit over a decade

Joe Biden
President Joe Biden.

  • Biden’s budget will propose $6 trillion for fiscal year 2022, according to a New York Times report.
  • It will also run a $1.3 trillion deficit over a decade, which will be offset by corporate tax hikes.
  • This will mainly fund Biden’s infrastructure plan while leaving out campaign promises, like canceling student debt.
  • See more stories on Insider’s business page.

President Joe Biden’s first budget request will officially be unveiled on Friday, and the New York Times found that it will propose $6 trillion to help fund his major infrastructure spending plans.

On Thursday, the Times reported that the $6 trillion budget proposal for fiscal year 2022 will be accompanied by deficits of $1.3 trillion over the next decade, and it will also call for total spending to increase to $8.2 billion by 2031, according to obtained documents.

This would take the US to its highest federal spending levels since World War II, and it comes as Biden is lobbying for his $4 trillion infrastructure plan, which not only includes rebuilding physical infrastructure, but climate change initiatives and efforts to boost the middle class, as well. This budget proposal will help him do that.

The Times added that under Biden’s budget proposal, the federal deficit would hit $1.8 trillion in 2022, and it would recede slightly after that before growing to nearly $1.6 trillion by 2031. But his plans to fund infrastructure by corporate tax hikes and wealthy people would help shrink those deficits, despite Republicans firmly opposing those hikes.

Last week, Insider reported that issues that Biden campaigned on – like student debt forgiveness – will not be included in Friday’s budget proposal, based on information sources told The Washington Post, and health care promises, like lowering prescription drug costs, won’t be making the cut, either.

“The President’s budget will focus on advancing the historic legislative agenda he’s already put forward for this year,” Rob Friedlander, spokesman for the White House budget office, told the Post. “The budget won’t propose other new initiatives but will put together the full picture of how these proposals would advance economic growth and shared prosperity while also putting our country on a sound fiscal course.”

Biden also pledged to reform the unemployment insurance system when unveiling his American Families Plan, but that will reportedly not be in the budget, either. It will mainly focus on already proposed infrastructure investments, like education and climate change, and will likely not go too far beyond that for the time being.

However, this budget proposal requires congressional approval, so its fate rests at the hands of lawmakers. But given the course the infrastructure bill has taken so far, there will likely be disagreements on what will end up in the budget. For example, Democrats have been urging Biden to ditch negotiations with the GOP on infrastructure and pass a big spending bill while Republicans continue to counter Biden’s plan with a lower scope and size.

But Biden is still committed to bipartisanship, and whether his budget proposal gets bipartisan support remains to be seen.

White House Press Secretary Jen Psaki said last week that the negotiations were an art of a “different kind of a deal – a deal for the working people.”

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The GOP prepares to come up $500 billion on infrastructure after Biden comes down by $600 billion

Roger Wicker Mississippi
Sen. Roger Wicker.

  • GOP Sen. Roger Wicker said Republicans will bring Biden a $1 trillion infrastructure counter-offer.
  • This follows the White House’s offer to cut its $2.25 trillion plan down to $1.7 trillion.
  • Some Republicans still think $1 trillion is too high, while the parties are far apart on funding new spending.
  • See more stories on Insider’s business page.

In his latest attempt to get Republicans on board with his infrastructure plan, President Joe Biden offered them a $1.7 trillion plan last week, down from his initial $2.25 trillion proposal. GOP lawmakers plan on countering that with a $1 trillion plan on Thursday.

A group of GOP senators, led by Shelley Moore Capito of West Virginia, met with Biden two weeks ago to discuss their initial $568 billion counter-proposal to Biden’s infrastructure plan. They missed last Tuesday’s deadline to bring the president a new offer, but Sen. Roger Wicker of Mississippi told reporters on Tuesday that a new offer close to $1 trillion will be brought to the table on Thursday.

“We’re going to hit a figure very close to what the president said he would accept, and it will end up being the most substantial infrastructure bill ever enacted by the federal government,” Wicker told reporters.

Capito’s office said in a statement to Insider last week that Friday’s White House offer was “well above the range of what can pass Congress with bipartisan support” and that Republicans and the White House still differed on what’s considered infrastructure, how much should be spent on it, and where that money should come from.

While Biden has proposed funding the plan through corporate tax hikes, Republicans have strongly opposed doing so, instead suggesting “user-fees,” a set of charges levied on the users of a federal service or good, like raising the federal gas tax.

And last week, Insider reported that Capito floated the idea of taking unused federal unemployment money to fund infrastructure, which comes as 23 GOP-led states have so far announced they are ending unemployment benefits early following the weak April jobs report.

Wicker told reporters on Tuesday that repurposing stimulus funds, and not spending any new money, will be something the GOP will push for. Republicans are also pushing take Biden’s proposed tax hikes on the richest Americans and multinational firms off the table in any deal.

“I do think there’s a path forward here if the president is willing to take it,” Sen. Joni Ernst of Iowa, the fourth-ranking Senate Republican, told Insider. “As long as we’re not talking about tax hikes, I think that’s really important because Republicans are not going to support any tax hikes.”

Biden has proposed lifting the corporate tax rate to 28% from the 21% level put in place in the 2017 Republican tax law. He’s also seeking to impose higher taxes on investors and raise the marginal income tax rate.

Not all Republicans support the $1 trillion figure, likely complicating a bipartisan plan. Sen. Mitt Romney of Utah told reporters that it’s “unlikely” he’d support a number that high, which could pose another barrier to reaching a bipartisan agreement.

As these negotiations continue, Democratic lawmakers are increasingly urging Biden to forego these discussions and move ahead with passing the comprehensive package he proposed, with corporate tax hikes, to get urgent aid to Americans.

“We appreciate the White House’s interest in reaching across the aisle to seek Republican support for overwhelmingly popular infrastructure priorities …” House Democrats wrote in a letter. “While bipartisan support is welcome, the pursuit of Republican votes cannot come at the expense of limiting the scope of popular investments.”

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Biden launches a fiery defense of his tax hikes: ‘This is about making the average multimillionaire pay just a fair share’

Biden
President Joe Biden.

  • In a Wednesday address, President Joe Biden gave an impassioned defense of his proposed tax hikes.
  • Biden wants to hike taxes on corporations and Americans making over $400,000 a year.
  • He said the rates he’s proposing have historical precedent, and he wants to offset spending.
  • See more stories on Insider’s business page.

While answering questions after a Wednesday address on the impact of the American Rescue Plan, President Joe Biden doubled down on his tax proposals and the need for wealthier Americans and corporations to pay their fair share – and took aim at prior Republican tax cuts.

“My Republican friends had no problem voting to pass a tax proposal – it expires in 2025 – that costs $2 trillion,” Biden said, adding that none of that was paid for. In fact, he said, it “gave the overwhelming percentage of those tax breaks to people who didn’t need it. The top one tenth of 1% didn’t need it.”

As for the argument Republicans gave in 2017, that it would generate a “great economic surge and growth,” Biden said “everyone from the Heritage Foundation on has pointed out it hadn’t done that.”

Then he turned to his plans to hike taxes.

“The biggest 35 or 30 corporations didn’t pay a single solitary penny last year, and they’re Fortune 500 companies,” Biden said. “They made $400 billion. They paid no taxes. How can that make any sense?”

Biden said sometime in the 2000s – he’d have his staff supply the exact date – the average CEO of a Fortune 500 company made about 36 times what the average employee of that corporation made.

“It’s over 450 times as much now. As my mother would say, who died and left them boss?” he said before raising his voice while questioning how it can benefit the economy to have CEOs make so much more than workers. “No, seriously, what rationale, tell me what benefit flows from that?”

“We’re not going to deprive” any executive “of their second or third home” or traveling privately by jet, he said.

“It’s not going to affect your standard of living at all. Not a little tiny bit,” Biden said, raising his voice, “while I can affect the standard of living of people I grew up with.”

Biden has proposed a slew of tax measures to offset the proposed spending in his two-pronged infrastructure package. Those include raising the income tax rate for the wealthiest Americans to 39.6%, bringing up the capital gains rate to the same level, and increasing the corporate tax rate from 21% to 28%. The corporate tax rate was one measure that was slashed under Trump’s tax package, falling from 35% to 21%.

Biden said he was open to compromising on the corporate tax rate – some Democrats have floated an increase to 25%, instead of 28% – but said he still wants to offset spending.

“I’m willing to compromise, but I’m not willing to not pay for what we’re talking about,” he said.

Inequality expert Sarah Anderson has testified in front of the Senate Budget Committee that the yearly gap between CEO pay and the pay of average workers is about 350 to 1.

Overall, the tax burden of Biden’s proposal would fall squarely on the top 1% of American tax filers, who would pay an average additional $100,000 per year. Biden addressed his proposal to raise the income tax rate to 39.6% for Americans making over $400,000, which he noted was a return to the Bush-era level.

“Just raise it back to what it was before. It raises enough money from that savings to put every single person in community college who wants to go,” he said. On that topic, he posed a question: “What’s going to grow America more?” The options, he said, are “the super wealthy having to pay 3.9% less tax” or an entire generation “of Americans having associate degrees.”

In closing, Biden said: “This is about making the average multimillionaire pay just a fair share. It’s not going to affect their standard of living” – pausing to whisper – “a little bit.”

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Biden won’t get all his tax increases through Congress. Here’s what Morgan Stanley thinks is possible.

joe jill biden
President Joe Biden and First Lady Jill Biden.

  • President Joe Biden wants to pay for his infrastructure proposals with tax increases.
  • Morgan Stanley strategists predict taxes will go up, but not as much as Biden’s proposing.
  • Still, it said Americans earning over $400,000 should expect to see their income tax rate increase.
  • See more stories on Insider’s business page.

President Joe Biden wants to increase taxes on some of the country’s highest earners to pay for affordable childcare, paid family leave, and free community college.

But how much will taxes actually go up? Morgan Stanley thinks Biden will only get some of what he’s asking for.

The investment bank cited comments from moderate Democratic Sen. Joe Manchin of West Virginia in predicting that a 25% corporate tax rate – not 28%, as Biden proposed – is possible. And while the income rate increasing to 39.6% for those earning over $400,000 remains possible, it said, an increase to the capital gains rate would be 30% or below, not the 39.6% currently proposed.

Manchin has signaled he wants a corporate tax rate closer to 25%, while Axios reports that some Senate Democrats are also currently resistant to potential tax hikes.

The bank also said that extending a 3.8% Obamacare tax to high earners is likely possible, but eliminating the step-up basis, which allows valuable assets to be passed along without taxes on any of its gains, may not be.

Screen Shot 2021 04 29 at 9.28.45 AM
Chart via Morgan Stanley.

Increased funding for ramped-up IRS enforcement – which would target the wealthiest Americans, and ensure they’re paying taxes owed – is possible, according to Morgan Stanley. That measure alone could bring in an additional $700 billion over the next decade, according to the Department of Treasury. But, as Insider’s Ayelet Sheffey reported, that boost in funding would likely mean the wealthiest would still be hiding hundreds of billions every year.

Since neither eventual bill is likely to garner GOP support, the bank said a package is likely headed for party-line reconciliation – and require some negotiation.

Still, Morgan Stanley’s base case sees Congress passing about $4 trillion in spending, whether it’s in one package or two, essentially the total that the White House wants.

“Look, I’m not out to punish anyone. But I will not add to the tax burden of the middle class of this country,” Biden said on Wednesday evening in his first joint address to Congress. “They’re already paying enough. What I’ve proposed is fair. It’s fiscally responsible.”

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American corporations are paying their fair share – to international tax havens

uncle sam taxes
  • President Joe Biden wants to increase the corporate tax rate, and the US is working on a global minimum tax.
  • Right now, US multinational companies are reporting the majority of their foreign profits in tax havens.
  • A global minimum tax would make taxes around the world more uniform for those companies.
  • See more stories on Insider’s business page.

When asked if corporations pay their fair share in federal taxes, two-thirds of respondents in a 2018 Gallup poll said they pay too little. In fact, Gallup found “the public consistently thinks that ‘upper-income people’ and corporations do not pay their fair share in federal taxes.”

In recent months, one of the people calling out corporate taxes paid – or lack thereof – has been President Joe Biden.

“I’m not trying to punish anybody, but damn it, maybe it’s because I come from a middle-class neighborhood, I’m sick and tired of ordinary people being fleeced,” Biden said in a recent speech. He’s also taken aim at 55 multinational companies that paid no income tax last year, citing a report from the left-leaning Institute on Taxation and Economic Policy.

As president, he’s trying to do something about it, proposing a suite of tax changes as part of his infrastructure package under which corporations would see their taxes climb from 21% to 28%, although he may well compromise at 25%.

Also, Treasury Secretary Janet Yellen has been calling for a global minimum corporate tax rate, and is working with the G20 on it. Essentially, this would be a nonbinding rate for multinational companies – meaning that corporations would be disincentivized from leaving one country for another with more favorable tax rates.

The truth is multinationals are still paying taxes, but they’re increasingly paying into international tax havens such as Bermuda and Singapore.

“According to the US Treasury, of the top 10 foreign countries in which US multinationals report profits, seven are tax havens,” the note said. “These are relatively small economies: Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore and Switzerland.”

According to the note, those smaller economies still represented 60% of the foreign income multinationals reported in 2019 – “more than 1.5 times the rest of the world.” In 2000, that amount was closer to 30%.

Screen Shot 2021 04 20 at 2.00.35 PM
Chart via BofA Research.

The chart notes that the 2017 Tax Cuts and Job Acts (TCJA) – Trump’s signature tax package – did include a few measures meant to discourage this “profit sharing.” That’s the same package that included a decrease of the corporate tax rate to 21% from 35%. After its passage, the amount of money pouring into these tax havens leveled out, and was no longer rising, “but the share did not decrease meaningfully and so profit shi┼┐ting remains a major concern.”

Biden’s Made in America Tax Plan specifically targets profit shifting, and “would also eliminate the tax laws
embedded in the 2017 TCJA that incentivize the offshoring of assets,” according to the Department of Treasury.

Before a global minimum tax passes, it would need OECD members to agree on a framework for the policies they want to implement. As BofA notes, a few major tax havens are in the EU, which would have to pass any proposal unilaterally. And there could be resistance in America, with at least one Republican – Senator Pat Toomey (R-Pa.) – speaking out against it.

But change is probably still on the way.

“What is clearer, in our view, is that the current political environment is ripe for progress on the issue,” BofA said. “Given the rise in global debt because of the pandemic and the fiscal response, taxes will likely have to increase in many countries. The US probably has the most leeway to continue running large deficits, but it is leading the charge on the global minimum tax.”

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