(May 29): President Joe Biden’s proposed tax hikes are forecast to bring in US$3.6 trillion over the next decade, the Treasury Department said Friday, a key funding source for the US$4 trillion he hopes to spend remaking the American economy and social safety net.
The figure, representing the sum of all tax increases if enacted by Congress, came as is part of the “Greenbook” report that accompanies the White House’s US$6 trillion 2022 budget request, also released on Friday. It effectively serves as the revenue side of the ledger, against Biden’s spending priorities in the budget.
After accounting for the US$1.2 trillion in tax credits for clean energy, electric cars, low-income families and housing investment, the plan would net Biden about US$2.4 trillion to invest in other economic priorities. The White House has said that the US$4 trillion combination of its American Jobs Plan and American Families Plan would be fully paid for over 15 years.
The Greenbook, which hasn’t been released since President Barack Obama’s final year in office in 2016, is the most comprehensive look at the tax and revenue proposals the administration endorses.
The document spans the gamut of Biden proposals, including a global minimum corporate tax, an increase in the levy on capital gains at death and closing the carried interest tax break for fund managers, all of which Biden has already outlined in his funding proposals for his longer-term spending plans.
The top income tax rate would increase to 39.6% from 37% starting in 2022, according to the proposal. Married couples earning US$509,300, individuals earning US$452,700 and heads of households earning US$481,000 would be affected by the increases.
The proposal was met with criticism from Republicans who said now is not the time to raise taxes. Senator Mike Crapo of Idaho, the top Republican on the Senate Finance Committee, said in a statement Biden’s plan would “strangle the economy with regulations and red tape.”
The Greenbook proposal assumes the capital gains increase would take effect on the date it was announced, a Treasury official said on a call with reporters. That proposal was announced in late April.
The reason for doing that is to prevent acceleration of gains during a temporarily low tax rate, another official said. But the Treasury will work with Congress to determine the appropriate effective date, the person said. The large majority of the other tax increases are slated to go into effect in 2022.
The retroactive tax increase on capital gains will be difficult to get through Congress in its current form given Democrats’ thin majorities and lawmakers’ rare history for raising taxes without giving people a fair warning, said John Gimigliano, who leads federal tax legislative services at KPMG LLP.
The Greenbook also includes key tax-credit proposals that Democratic lawmakers see as crucial to campaign on during the 2022 midterm elections. The administration is calling for an extension of an expanded child tax credit through 2025, as well as benefits for green energy and electric vehicles.
While Congress is unlikely to enact Biden’s tax ideas wholesale, the Greenbook has political significance by detailing the proposals that have the support of the White House.
“This gives Congress room to run. Congress is going to have to develop the policy and find the votes,” Gimigliano said. Congressional leadership “is going to have to figure this out themselves to a certain extent.”
Democrats will likely have to scale back some of the ideas to be able to pass them through their razor-thin majorities in Congress. Some Senators, including Joe Manchin of West Virginia and Mark Warner of Virginia, have expressed concerns about Biden’s corporate tax rate and capital gains plans.
The document will serve as a starting point for congressional Democrats to begin turning Biden’s agenda into legislation. House Ways and Means Chairman Richard Neal and Senate Finance Committee Chair Ron Wyden have already begun sifting through Biden’s broad outlines and preparing to move legislation later this year.
Pressure from moderates to pare down the tax proposals, along with procedural rules in the Senate, could both prove to be stumbling blocks as Democrats negotiate.
On the flip side, the Treasury outline omits a key priority for some House Democrats: an expansion of the state and local tax, or SALT, deduction. More than 20 lawmakers from high-tax states have said they would oppose Biden’s economic agenda unless it also included an expansion of that write-off, which is currently capped at US$10,000.
The Greenbook also details other previously announced proposals, including one to impose taxes at death on inherited property for large gains accrued during the previous owner’s lifetime. The proposal would also prevent private-equity and hedge fund managers from applying the long-term capital gains tax rate to their portion of the fund’s profits, known as carried interest, if their overall taxable income exceeds US$400,000.
Biden’s proposals also call for US$2 trillion in additional business-tax revenue over the next 10 years from changes like boosting the corporate tax rate, raising the minimum taxes paid by U.S. companies on their foreign income and revamping efforts to combat companies’ attempts to shift profits offshore.
A Treasury official said the administration plans to work with Congress on proposals to create a new research-and-development tax incentive to replace one created under President Donald Trump, but declined to give details on what that could look like.
Another idea omitted from the Greenbook was something Biden campaigned on: repealing a 20% small business deduction created in the 2017 Republican tax law for high earners. Some plans didn’t appear in the Greenbook because they require more policy development, a Treasury official said. Others will likely show up in future budgets, the official added.