- This summer everyone in Washington will be talking about taxes, while parents will get a tax credit.
- Biden wants to raise taxes to pay for a huge infrastructure bill that may be ready in July.
- Meanwhile, millions of American parents will start getting checks from Biden’s expanded tax credit.
- See more stories on Insider’s business page.
You’ve probably heard that it’s hot vax summer. Vaccination rates have climbed, mask mandates are lifting, and Americans are slowly starting to venture into the first semblance of the After Times. In anticipation of the US fully reopening, cooped-up Americans are buying new going-out clothes and getting ready for the intimacy they put on pause. Even brands are getting thirsty.
But another thing will be heating up this summer: tax policy. President Joe Biden has already shepherded a law through Congress that will change the tax code (for a few years) to send monthly checks to American families, and he’s hard at work on another that would raise taxes on corporations and families earning more than $400,000 a year.
The stakes are scorchingly high, because despite the reopening economy, the pandemic exacerbated preexisting inequalities, while millions of Americans remain unemployed and April’s surprisingly dismal jobs report showed an uneven labor-force recovery.
Enter the hot tax summer.
Biden wants to raise taxes on the wealthy and corporations to offset massive infrastructure spending
Some of the country’s highest earners will see tax increases if Biden gets his way. He’s proposed increasing the income tax rate to 39.6% for Americans earning over $400,000, and raising the capital gains rate to the same level.
That increase – targeted only at Americans earning $1 million or more – would hit wealthy investors who get the bulk of their income from assets like stocks. The capital gains rate is generally lower than the rate that income is taxed at. As Insider’s Liz Knueven reported, the change would affect just about 0.4% of American taxpayers.
Overall, only the top 1% of filers would be affected and have to pay $100,000 more a year in taxes.
“This is about making the average multimillionaire pay just a fair share,” Biden said in a fiery speech defending the increases. “It’s not going to affect their standard of living a little bit.”
Significantly, Biden also wants to close up some tax-code loopholes and to ramp up tax enforcement on the wealthiest American, who have been found to hide billions in income from the IRS. The IRS estimates that there’s a tax gap of $441 billion a year. But Charles Rettig, the agency’s commissioner, has told Congress that the number could actually be over $1 trillion.
The gap between taxes owed and taxes paid could grow only if left untouched, according to the Department of Treasury. Treasury estimates that Biden’s proposed $80 billion investment in the IRS could bring in an additional $700 billion over 10 years. That would still leave hundreds of billions in taxes going uncollected each year, as Insider’s Ayelet Sheffey reported.
Biden’s also proposed raising taxes on corporations, aiming to bring the corporate tax rate up to 28% from 21%, though it will likely end up closer to the international average rate of 25%.
Meanwhile, an expanded tax credit will start putting checks into families’ pockets
Regardless of what happens with the infrastructure negotiations, many Americans will start feeling the effects of new Biden tax policies this summer.
Beginning July 15, families will start receiving monthly checks of up $300 from the IRS. Every 15th of the month for the next year – unless it falls on a holiday – checks will come. Those checks come from the expansion of the child tax credit, which was revamped under Biden’s $1.9 trillion American Rescue Plan.
One of Biden’s proposals in the American Families Plan is extending those checks through 2025 (many Democrats want to make them permanent). The checks are, as Insider’s Aria Bendix reported, essentially akin to basic income, and most children in the United States are set to benefit from then.
Low-earning Americans will also see an income boost from the expanded Earned Income Tax Credit, which subsidizes wages. According to an analysis from the left-leaning Center on Budget Policy and Priorities, over 17 million adults will now be eligible for an expanded subsidy.
Biden’s proposed tax increases are already seeing pushback. Some businesses have come out against the corporate increase, and there’s likely to be a lot of back and forth over what can and cannot be included in Biden’s two-pronged infrastructure package.
As Politico reported, lobbyists and executives think that they’ll be able to kill off many of the tax hikes that the president is putting forward. That could put some of Biden’s promises in jeopardy.
So while it’s not clear what, exactly, taxes will look like on the other side of all of this, they’re already in the spotlight – and they’ll probably only become a hotter topic as the temperature goes up this summer.