Infrastructure talks enter last-ditch stage as both Republicans and Democrats eye gas tax increase

Mitt Romney congress
Republican Sen. Mitt Romney of Utah.

  • Sen. Mitt Romney told Insider a bipartisan group is weighing indexing the gas tax to inflation.
  • The gas tax hasn’t been raised since 1993.
  • Other Democrats appeared noncommittal, reflecting the delicate state of the talks.
  • See more stories on Insider’s business page.

Republicans and Democrats are eyeing a potential increase to the gas tax as both parties entered a chaotic last-ditch effort to strike a bipartisan infrastructure deal after a month of failed discussions between President Joe Biden and Senate GOP

The bipartisan group is in the early stages of assembling a plan they hope will draw at least 60 votes in the evenly-divided Senate. The cohort is equally split between Republicans and Democrats.

It includes Republican Sens. Mitt Romney of Utah and Rob Portman of Ohio, as well as Democratic Sens. Joe Manchin of West Virginia, Kyrsten Sinema of Arizona; and Jon Tester of Montana. The group emerged after Biden pulled the plug on negotiations with Sen. Shelley Moore Capito of West Virginia, who had been Republicans’ chief negotiator since April.

Romney told Insider on Thursday that the new working group was weighing indexing the gas tax to inflation. The 18-cent levy hasn’t been raised since 1993. “It keeps it at the same value that it has today,” the Utah Republican said.

The White House has previously said bumping the gas tax was off limits given Biden’s pledge to not hike taxes for households earning under $400,000. They did not immediately respond to a request for comment.

But the idea gained some momentum among Democrats when Sen. Dick Durbin of Iowa, second-ranked in the chamber, said he believed it “ultimately has to happen.”

“I look at it as a user fee. We pay taxes on gasoline because we want to drive our cars on safe roads,” Durbin told reporters.

Still, other Democrats in the group like Tester appeared noncommittal. “It’s not one of my favorite things, but we’ll see what the entire deal looks like,” he said in an interview. “I gotta see it in the context of everything, see what stays in and drops out.”

Sen. Mark Warner of Virginia, another Democrat in the group, declined to answer whether he supported it, a sign of the delicate state of the negotiations. “I actually think it’s better … until the cake is fully baked, to keep the ingredients quiet,” he told Insider.

Seth Hanlon, a tax expert and senior fellow at the liberal-leaning Center for American Progress, projected that indexing the gas tax to inflation would generate between $30 billion to $35 billion over a decade.

“It would be borne by consumers,” Hanlon told Insider. “We could get roughly the same revenue by rolling back the 2017 corporate tax cut by a fraction of a percentage point.”

He added that indexing the gas tax could have “modestly positive environmental effects,” though not if it’s only paired with spending focused on physical infrastructure and if it omits climate.

Biden’s two-part economic plans amount to $4 trillion in fresh spending on physical infrastructure like roads and bridges, as well as caregiving, cash payments, universal pre-K, community college, and a wide range of measures.

Both parties remain far apart on the scope of an infrastructure bill and how to pay for it. Other Republicans are increasingly signaling that climate provisions wouldn’t be included in their package.

Biden, along with congressional Democrats, are pushing clean energy tax incentives, a national system of electric vehicle charging stations, and federal funds to retrofit homes.

“If they’re looking for a line item that says ‘climate,’ they’re not going to see that,” Sen. Lisa Murkowski of Alaska said of Democrats.

A few Senate Democrats have stepped up their criticism of the bipartisan talks in recent days, warning that such talks risk omitting measures to combat climate change in an infrastructure deal. Another top Democrat threatened to withhold his vote if climate wasn’t sufficiently addressed.

“On a big infrastructure bill, to pass on climate altogether? No way!” Sen. Ron Wyden of Oregon, chair of the Senate Finance Committee, told Insider. “Think I’m blunt enough? No way.”

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It’s perfectly legal for billionaires to pay so little in taxes. Democrats say they could finally change that after the bombshell ProPublica report.

Felipe Castro holds a sign advertising a tax-preparation office for people who still need help completing their taxes before the IRS deadline on April 14, 2010, in Miami.
Felipe Castro holds a sign advertising a tax-preparation office for people who still need help completing their taxes before the IRS deadline on April 14, 2010, in Miami.

  • A ProPublica report based on secret IRS files showed billionaires pay relatively little tax.
  • Inequality experts have been warning for years that the wealthy pay relatively low taxes.
  • The details added impetus to a push by Democrats to ramp up taxes on the country’s highest earners.
  • See more stories on Insider’s business page.

On Tuesday morning, ProPublica published a bombshell report showing how little America’s wealthiest pay in taxes, based on leaked documents from the Internal Revenue Service (IRS).

The report shows in detail how billionaires like Jeff Bezos and Warren Buffett have seen billions added to their net worth with little impact on their tax bill. It’s totally legal, and for many, not all that surprising.

“It’s not surprising at all, I think,” Chuck Collins, who works at the left-leaning Institute for Policy Studies, an organization dedicated to highlighting wealth inequality, told Insider.

Collins recently wrote a book on the ways the ultrawealthy hide their money and avoid taxation. In it, he uses the term “wealth defense industry” for the cottage industry that’s grown around helping the rich hold onto their money.

“It’s going to be very hard for ordinary people to decipher these tax transactions because they’re purposefully complex,” Collins said. “The wealth defense industry, their bread and butter is complexity, and opaqueness.”

Chuck Marr, the director of federal tax policy at the liberal-leaning Center on Budget and Progressive Priorities, said “we’ve been making this case for a long time.” He pointed to a paper from 2019 that outlines many findings similar to those in Tuesday’s report.

Still, it’s one thing to know something is likely happening, and another to see the details laid bare, and the figures involved. For example, ProPublica found that Warren Buffett paid 0.1% in “true tax rate,” which compares how much he paid each year in taxes to how much his wealth grew.

ProPublica’s report could draw widespread attention – and scrutiny – to certain intricacies of the tax code just as President Joe Biden moves to reform taxes to pay for his infrastructure proposals.

Already, Democratic lawmakers are seizing on the public report as a way to kickstart tax reform.

The report “should make it very hard for the Congress to not address it,” Marr said. “I think it really underscores, again, that very wealthy people do not pay tax on much of their income. And so this tax bill is a clear opening to address that.”

Jeff Bezos
Amazon CEO Jeff Bezos, the world’s wealthiest man.

America’s wealthiest make most of their money from assets, not income

As the 2019 CBPP paper lays out, a good amount of the income that the wealthiest bring in isn’t technically income – or at least it’s not taxed that way.

If you work a job where you receive wages in a paycheck, you’re probably familiar with the income tax, which taxes the money you get for going to work. Those wages would be income, and you’d be taxed under the income tax.

But, as both the CBPP and ProPublica note, the wealthiest Americans get most of their wealth from assets like stocks, and therefore pay taxes on capital gains.

As Marr and coauthors Samantha Jacoby and Kathleen Bryant write, capital-gains taxes are “effectively voluntary to a substantial extent: High-wealth filers may accumulate capital gains every year as their investments appreciate, but they don’t owe tax on those gains until – or unless – they ‘realize’ the gain, usually by selling the appreciated asset.”

So if you hold onto your stock assets, you’re not seeing that capital gains rate. Goldman Sachs estimated last month that the wealthiest Americans possessed between $1 trillion to $1.5 trillion in unrealized capital gains at that time. Some argue that those unrealized gains should be taxed, since the wealthiest could be sitting on valuable stocks, making money, and not paying taxes. Meanwhile, researchers at the right-leaning Tax Foundation argue that a progressive consumption tax would be a better way to tax the rich.

ProPublica reported that the ultrawealthy can also borrow hefty sums of money to pay off their bills as they sit on stocks and take in little income. “They’ll borrow money and they’ll use the stock as collateral,” Marr said. That means the wealthy are essentially using these loans as a form of income, but aren’t taxed as such.

As Marr, Jacoby, and Bryant write, “this is often a much cheaper strategy than selling stock and paying capital gains taxes, particularly when interest rates are low.”

Joe Biden
President Joe Biden.

The report could add flame to the fire for tax reform

Even before the ProPublica report, tax debate had been brewing. In particular, a provision called the “step-up basis” had been facing scrutiny.

Let’s say you’ve held onto stock for your whole life, and it’s only grown in value. If you die and leave it to someone else, the stock takes on the value at which the recipient gets it, meaning neither the original owner nor the inheritor are taxed on those gains.

For very wealthy people, Marr said, that “wipes out a lifetime of tax liability.”

Biden wants to do away with the step-up basis and he wants to tax capital gains for those making over $1 million at a rate equivalent to income.

“Broadly speaking, we know that there is more to be done to ensure that corporations, individuals who are at the highest income are paying more of their fair share,” White House Press Secretary Jen Psaki told The Washington Post in response to the ProPublica report. “Hence, it’s in the president’s proposals. His budget and part of how he’s proposing to pay for his ideas will go ahead.”

“The principle here is to equalize the treatment of ordinary income and capital gains, and that is a principle that’s neither new or particularly novel,” Brian Deese, the director of the National Economic Council, said in an April briefing. “In fact, the last president to enact a reform to equalize the treatment of ordinary income and capital gains was President Reagan, who did so while raising capital-gains taxes as part of the 1986 tax reform.”

The White House did not respond to Insider’s request for comment.

There’s been GOP resistance to further alterations to the tax code following their 2017 tax cut, especially any increase in rates. But the new reporting already ramped up the tax debate within Congress on Tuesday.

Sen. Bernie Sanders, who chairs the Senate Budget Committee, told reporters on Capitol Hill, “To the surprise of nobody I know, the rich and powerful aren’t paying their fair share, what else is new?” He urged lawmakers to approve Biden’s tax proposals.

“I do want people to understand the bottom line,” Sen. Ron Wyden, chair of the Senate Finance Committee, told reporters. “What ProPublica is revealing is, again, some of the country’s wealthiest taxpayers [that] profited handsomely during the pandemic are not paying their fair share.”

He said he’s in the process of crafting a proposal to change that. Asked by Insider about the timeline of its introduction, Wyden responded: “I’ll have it ready to go shortly.”

“Often solutions to this are portrayed as radical, but what’s radical is the current situation,” Marr said. “What’s radical is that wealthy people, a lot of their income never gets taxed. That’s radical.”

Read the original article on Business Insider

Joe Biden wants to tax the wealthy without creating a wealth tax, even though it’s overwhelmingly popular

amtrak joe biden
President Joe Biden.

  • As infrastructure talks begin to heat up, taxes – and how much they’ll go up – will be a hot topic.
  • Yes, Biden wants to raise taxes on the wealthy, but he doesn’t want to do an outright wealth tax.
  • It’s an important distinction, as Biden is proposing tweaks to already existing programs.
  • See more stories on Insider’s business page.

Yes, President Joe Biden wants to tax the wealthiest Americans. But he wouldn’t do it with a wealth tax.

It may seem like a small difference, but it’s a significant one. A wealth tax is an outright tax on someone’s net worth, while Biden is proposing changes to existing taxes.

Of course, there’s a famous example of a wealth tax from one of Biden’s rivals from the 2020 campaign: Sen. Elizabeth Warren’s Ultra-Millionaire Tax Act, which would levy additional taxes on those with a net worth of $50 million or more.

White House Press Secretary Jen Psaki broke it down at a March press briefing: “I know Sen. Warren has put forward a wealth tax, and the president shares her view that middle-class families are paying more than their fair share and those at the top are not doing their part, so certainly he has that shared objective,” before continuing, “He laid out during the campaign his own plans for fixing this, which are different from Sen. Warren’s.”

When he talks about raising taxes, Biden’s tone strikes notes of Warren and Sanders, saying hikes won’t impact the wealthiest’s standard of living or “deprive” them of their second or third homes, and he’s “sick and tired of ordinary people being fleeced.”

But he’s not legislating like Warren and leaning into an outright wealth tax (even though it’s consistently popular). Instead, he’s opting for more of a backdoor, with a series of complex reforms that may be more palatable to lawmakers. It shows the potential limitations of how far left Biden is willing to – or thinks he can – go.

Biden would raise the income tax rate to 39.6% for Americans earning over $400,000, and would increase the rate of tax on assets – called capital gains – to be in line with that 39.6% income tax, rather than the current lower rate of around 20%. He also wants to ramp up IRS enforcement on the ultrawealthy, who have been found to hide billions. He also wants to close up loopholes like the stepped-up basis, which can provide massive tax relief on inherited properties.

“While there may be some overlap in the people – the subset of the population – being hit by these tax hikes, the design is very different,” Garrett Watson, a senior policy analyst at the Tax Foundation, told Insider of the difference between the two plans. “One is hitting income, and the other is taxing the stock of wealth or someone’s net worth.”

The Biden White House hasn’t totally dismissed the idea of an outright wealth tax, but it hasn’t supported it, either. Treasury Secretary Janet Yellen cited implementation problems as one reason it would be difficult to execute, but never fully ruled it out.

How Biden’s proposal would impact the wealthy

That difference in design could actually have a disparate impact on the wealthiest Americans, according to David Gamage, a law professor at Indiana University who recently testified in front of Warren and a Senate Finance subcommittee on wealth taxes.

Biden’s proposal to hike the capital-gains rate would have a big impact on some of the very wealthy, Gamage told Insider. Specifically, he said, people like Wall Street financiers earn most of their income from capital gains (like selling off stocks increasing in value). That means they essentially pay half the tax rate on their income, unlike people drawing a straightforward salary.

But then there’s people like Elon Musk and Bill Gates and Warren Buffett.

“Most of their wealth or economic income is in the form of their stuff they own going up in value because of the things they’ve done, primarily stock,” Gamage said, “and until they sell that stock – which they’re never going to do, for the most part, because there’s ways around that – it wouldn’t be included in the tax space.”

Things like closing some potential loopholes, including the stepped-up basis, which taxes an inheritance on the value it’s inherited at – not value it gained while held by its prior owner – could potentially have a big impact on megamillionaires and billionaires, said Gamage.

But, according to Bill Smith, managing director for CBIZ MHM’s national tax office, said that getting through those loopholes adjustments could be paramount; he said it could be a “money-loser” if it just taxes capital gains alone, because people might hold off on selling them.

What it all means

If all of that sounds a bit confusing to you, you’re not alone.

Frank Clemente, president of Americans for Tax Fairness, noted that wealth taxes often poll well – and that could be because of how straightforward they are.

“I think that it does so well in polls because it’s easy to understand. It’s very clear. It does not hit people,” Clemente said. “If you’re assessing a wealth tax on $50 million, everybody knows they’re not at $50 million except for a very small slice of the population.” Clemente, a wealth tax advocate, said he wishes Biden had been a bit bolder in his proposals, but thinks he “calibrated his position to what he thinks he could get through Congress.”

However, that doesn’t mean talks of a wealth tax will simply just go away; Smith said he doesn’t think that we’re done with an either/or situation.

“I think the Biden proposals have a number of steps in the right direction, but we need more than what’s currently being proposed to really fix the deep flaws in the income tax,” Gamage said, noting that a proposal like Biden’s could work well in tandem with Warren’s wealth tax.

And what’s been proposed isn’t final yet. There’s a long road of negotiations over different economic packages and their funding ahead. It’ll be a hot tax summer, as politicians argue over how they’ll change and who will pay them. Currently, the top 1% of tax filers would shoulder the burden of proposed changes on individuals, paying $100,000 more annually.

“It’ll be interesting to see how this stuff moves through Congress,” Watson said.

For his part, Biden has vocally defended the tax measures laid out in his plans, emphasizing fairness and equity.

“This is about making the average multimillionaire pay just a fair share,” he said in one fiery address. “It’s not going to affect their standard of living a little bit.”

But it also won’t target their wealth.

Read the original article on Business Insider

Move aside, hot vax summer. Biden is bringing hot tax summer to the US.

Felipe Castro holds a sign advertising a tax-preparation office for people who still need help completing their taxes before the IRS deadline on April 14, 2010, in Miami.
Felipe Castro holds a sign advertising a tax-preparation office for people who still need help completing their taxes before the IRS deadline on April 14, 2010, in Miami.

  • 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 tax-credit checks will start going out in July, just when Speaker Nancy Pelosi has vowed to deliver Biden his infrastructure bill in the House.

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.

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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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Under Biden’s plan, the top 1% of Americans would pay an extra $100,000 in taxes every year

biden amtrak
President Joe Biden and First Lady Jill Biden.

  • Biden wants to increase taxes on the highest-earning Americans to offset his spending plans.
  • His proposed increases would basically only impact the top of 1% of Americans, according to a report.
  • Biden’s tax proposals aren’t final, and his proposed capital gains increase may not go up that much.
  • See more stories on Insider’s business page.

Under President Joe Biden’s proposed tax increases, the top 1% of Americans could soon see their tax bills grow by about $100,000 per year.

A new report from the Institute on Taxation and Economic Policy (ITEP) finds that only the highest-earning Americans would see their taxes change if President Biden’s proposed increases to the income tax rate and capital gains rate pass. That change is concentrated amongst the top 1%, defined as those with an income over $681,600 (their average income is $2,167,700). The bottom 99% of taxpayers would see a 0% tax change, it said.

On average, the highest earners would see an increase of $104,130 in taxes, coming in at around 4.8% of their income. For those making between $276,200 to $681,600 – an average income of $404,100 – the average tax increase would be $20 a year.

Some states will be hit harder than others by tax increases

In a few states, a larger share of the population would feel the impact of proposed tax hikes. The report highlights that in five states – and the District of Columbia – a more than 1% share of the population would feel a hit.

Those are New Jersey, Massachusetts, Connecticut, California, and New York. In Massachusetts and New Jersey, 1.2% of the population would be affected by tax hikes. The wealthiest New York City residents will soon have the highest tax rate in the country regardless, per Insider’s Hillary Hoffower.

Biden’s proposals target the wealthy, but they’re not final

Biden’s latest tax proposals explicitly target the highest-earning Americans to offset the costs of multibillion-dollar investments in childcare, education, and paid leave. He’s also proposed raising the corporate tax rate from 21% to 28% to offset investments in infrastructure like roads and bridges.

Beyond increases, the IRS could also get about $80 billion in funding to ramp up enforcement on the wealthiest taxpayers, as Biden is proposing. A recent study by IRS researchers and academics found that the top 1% of Americans may be hiding billions from the IRS; Biden’s increased IRS funding could raise $700 billion over a decade, which would still leave the wealthy hiding hundreds of billions.

Of course, the package still has a long way to go before becoming law. A Morgan Stanley research note looked at Biden’s proposals versus what they predict as possible, and said the corporate tax rate and rate on capital gains will ultimately come in lower. However, the income tax rate increase and IRS enforcement will likely be as Biden proposes.

“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 in a Wednesday speech to the joint session of Congress.

He added: “When you hear someone say that they don’t want to raise taxes on the wealthiest 1% and on corporate America – ask them: whose taxes are you going to raise instead, and whose are you going to cut?”

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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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Biden reportedly briefed major bank CEOs before unveiling infrastructure plan, corporate tax hike

Biden
President Joe Biden has framed his infrastructure plan as a means of strengthening democracy and undermining autocracy.

  • President Joe Biden’s infrastructure package includes an increase in the corporate tax rate.
  • He briefed several bank CEOs on the package the morning before the announcement, the WP reports.
  • Business had a mixed response to it, while it has broken clearly with the GOP on several issues.
  • See more stories on Insider’s business page.

President Joe Biden wants to increase taxes on corporations with his American Jobs Plan – and he let some leading business executives know before he announced it.

According to The Washington Post, the Biden administration briefed Brian Moynihan, the CEO of Bank of America, and David M. Solomon, the CEO of Goldman Sachs – along with “four other chief executives of the country’s biggest banks” – the morning of the infrastructure plan’s announcement.

They weren’t the only ones briefed, according to the Post; “in a 24-hour period,” groups like the Business Roundtable, the Chamber of Commerce, and National Association of Manufacturers also heard from White House officials, with outreach to thousands of small businesses also being planned.

All three of those groups have raised public objections: The Chamber of Commerce has come out against the corporate tax hikes, as have the Business Roundtable and the National Association of Manufacturers.

According to the Post, Commerce Secretary Gina Raimondo “has spoken to more than 50 leading executives in recent days about the plan.”

On the whole, the business reaction to that hike has certainly not been uniform, with CEOs surveyed by the Business Roundtable saying that the increase could impact hiring and wage raises, but Amazon CEO Jeff Bezos saying he supports an unspecified increase to the corporate tax rate, while Lyft cofounder and President John Zimmer supports the 28% rate.

But overall, the reaction from the business community has been somewhat tepid, as many businesses have opted to stay silent. The Post partially attributes this to the weakened relationship between the business community and the GOP, which accelerated after the January 6 insurrection on the Capitol.

Many prominent business leaders – including at least one who had previously supported President Donald Trump – spoke out against those attacks. More recently, some businesses have stepped up to voice their support for voting rights and access following the passage of a restrictive voting bill in Georgia, as some activists called for boycotts of companies that did not take action.

Republicans have come out against the proposed increase, which would bring the corporate tax to 28% from 21%. That’s still lower than the 35% rate in place prior to the Trump administration’s 2017 tax cuts. As Insider’s Joseph Zeballos-Roig reported, the GOP has instead been suggesting that average people shoulder the cost of infrastructure improvements in the form of “pay-fors.”

But another reason that the response has been tepid could be a looming compromise: Axios reported that Senate Democrats will push a 25% corporate tax rate, an amount that powerful moderate Sen. Joe Manchin has signaled his support for.

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82 unions and liberal groups urge Biden to go bigger on tax hikes and hold the wealthy accountable

joe biden
President Joe Biden.

  • 82 liberal groups urged Biden to go bigger on tax hikes and hold the wealthy accountable.
  • They cited Biden’s campaign proposals of reversing Trump’s tax cuts and investing in IRS enforcement.
  • Despite GOP opposition in Congress, the majority of Republican voters support tax increases.
  • See more stories on Insider’s business page.

President Joe Biden is unveiling the first part of his multitrillion-dollar infrastructure proposal today, which could include up to $3.5 trillion in tax hikes. Some unions and progressive organizations are saying he should go even bigger.

On Tuesday, 81 national organizations, led by Americans for Tax Fairness, sent a letter to Biden and Vice President Kamala Harris, commending the administration’s efforts to raise taxes on the wealthiest Americans and encouraging the president to go further. The letter said Biden’s tax plans were the “boldest of any major party presidential nominee in modern American history.”

The tax proposals have “received widespread media coverage and, perhaps more significant, your boldly progressive tax plan was heavily attacked by your political opponents, who spent untold millions of dollars and claimed falsely that the middle-class would pay more,” the letter said. “Yet, you won the most votes ever of any US presidential candidate, with a central promise of your campaign to make the rich and corporations pay their fair share of taxes. You have a clear mandate to pursue your agenda.”

The letter, which was signed by AFL-CIO and MoveOn, said that even among Republicans, raising taxes is popular. For example, a New York Times survey from November found that two-thirds of respondents, including 45% of Republican voters, supported tax increases on people making over $400,000, and an Americans for Tax Fairness survey from October found that 71% of Americans supported raising the income tax rate, including 51% of Republicans.

The best way to hold the wealthy accountable, according to the letter, is to reverse the “worst aspects” of former President Donald Trump’s Tax Cuts and Jobs Act (TCJA), including Biden’s proposals to:

  • Lift the corporate tax rate to 28% from the current 21%;
  • Restore the estate tax to its 2009 levels, meaning that still only the richest 0.59% of estates would get taxed;
  • And return the top marginal tax rate on the highest incomes to 39.6%, from the current 37%.

Aside from the TCJA proposed changes, Biden also proposed additional tax reforms during his campaign, like investing in Internal Revenue Service enforcement of high-income taxpayers and imposing a “financial-risk fee” on large Wall Street banks.

The letter said that even along with Biden’s campaign proposals, he could implement many other reforms, including a 10-percentage-point surtax on all incomes about $2 million, a financial transaction tax on bond and stock trades, and a wealth tax on ultra-millionaires.

Biden’s tax hikes have already faced opposition in Congress. While moderate Democratic Sen. Joe Manchin said an infrastructure proposal could be as large as $4 trillion using tax hikes as funding, Senate Minority Leader Mitch McConnell warned that won’t win his party’s support.

“I don’t think there’s going to be any enthusiasm on our side for a tax increase,” McConnell told reporters last week. Republicans even recently introduced a bill to repeal the estate tax, which would only affect 0.6% of farm estates.

But progressive lawmakers are continuing to push for measures that hold the ultra-rich accountable. Although Politico reported on Tuesday that Biden will not use a wealth tax to fund infrastructure, Sen. Elizabeth Warren of Massachusetts has led the effort to propose a 2% tax on households with net worths over $50 million.

“A wealth tax is critical for raising revenue, and that revenue is critical for raising opportunity,” Warren said on Twitter on March 1. “We build a future for all of our kids by investing in opportunity. This is one way we can make this government work for everyone – not just the rich and powerful.”

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