While proponents applaud the plan for addressing wealth and income inequality, critics argue that it would raise taxes on the majority of Americans and hurt the economy.
Biden would enact a number of policies that raise taxes on high-income households and corporations. It would repeal major provisions of the 2017 Tax Cuts and Jobs Act (TCJA), President Donald Trump’s massive tax reform package.
According to experts, Biden’s tax plan would make the tax code more progressive, with an increased tax burden falling on the top 1 percent of income earners.
“It’s probably one of the most progressive tax plans we’ve seen from a presidential nominee from one of the two major parties in many, many years,” Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy, told The Epoch Times.
Unlike Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), Biden hasn’t advocated for a wealth tax. However, Biden’s plan “definitely would go a long way to reduce income inequality, and also wealth inequality,” according to Wamhoff, who previously worked for Sanders as a senior tax policy analyst.
“We know that income is concentrated at the top, but wealth is even more concentrated at the top. So it’s really important not only that we tax high-income people but that we tax the income from wealth,” Wamhoff said.
And Biden’s plan achieves this objective in several ways, he said.
For taxpayers earning more than $400,000, Biden’s plan would raise the highest personal income rate back to the pre-TCJA level of 39.6 percent, from 37 percent. The plan would also raise the payroll tax for high-income individuals by applying it to earnings over $400,000.
In addition, it taxes long-term capital gains and dividends as ordinary income, applying the 39.6 percent tax on income above $1 million.
Biden’s tax policy is aggressive, according to experts, as it raises a significant amount of revenue relative to previous proposals.
Although the plan is geared toward higher-earners, “there is a negative effect across the board for all income groups,” according to Garrett Watson, senior policy analyst at the Tax Foundation.
In a report released in April, Watson and his colleagues estimated that the plan would pare after-tax income by 7.8 percent for the top 1 percent of taxpayers, by 1.1 percent for the top 5 percent and about 0.6 percent for other income quintiles.
On the corporate side, Biden’s plan increases the tax rate from 21 percent to 28 percent, and introduces a 15 percent minimum tax on large corporations’ book profits.
Economic Effect
The chief complaint about the proposal is that it would hurt the economy in the long term because it discourages savings, investment, and business formation. Critics also argue that it would fail to reduce the income and wealth gap in the country.Raising the corporate income tax rate wouldn’t be helpful “especially in the context of the economic recovery, where we know there’s pretty strong literature that there’s a negative economic effect of doing so,” Watson told The Epoch Times.
And introducing a minimum tax rate of 15 percent would also be negative for the economy even though its intention might be good, he added.
“Minimum book taxes just generally are not well-targeted tools to reform the tax code. It’s a very blunt instrument. It can create a variety of negative economic effects for firms that are trying to invest and hire,” he said.
The plan would be a drag on the economy, lowering real wages and job opportunities, according to Joel Griffith, a research fellow at the Heritage Foundation.
“They want to try to redistribute wealth more equally, but what that’s going to in effect do is result in less wealth being created, and that hurts the very people that they’re supposedly trying to help,” he told The Epoch Times.
“It is filled with not just the tax hikes, but also an immense amount of cronyism that gives a lot of tax breaks, tax deductions to special interest groups, such as renewable-energy companies.”
Wamhoff rejected the arguments that Biden’s plan would be a drag on the economy.
“It’s very difficult to look back and see a relationship between cutting taxes and economic growth, which is what a lot of Republicans believe ideologically. But there isn’t really any evidence for that,” he said.
Collected tax revenue is actually pumped back into the economy through spending on infrastructure, health care, or education, according to Wamhoff.
“So anyone who has a model where they assume the government collects money and then just burns it” would come to the conclusion that Biden’s plan would hurt economic growth, he said.