Biden’s budget calls for tax hikes on corporations and the wealthy

The budget released by President Biden on Monday aims to reduce deficits by $3 trillion over ten years, using an approach that has become familiar: tax hikes on corporations and the wealthy.

The president previewed a number of proposals in his State of the Union address last week and contrasted them with those of Republicans, who have called for extending most of the $2 trillion tax cuts that former President Donald J. Trump passed into law in 2017. For Mr. Biden, tax policy has been central to his efforts to make the economy more equitable and to counter Republican tax proposals that Democrats deride as giveaways to the wealthy.

“Does anyone really think the tax code is fair?” Mr. Biden asked during his speech last week.

In total, Mr. Biden is proposing $5 trillion in additional taxes on corporations and high earners over the next decade. Here’s what these increases would entail:

Corporate taxes are going up

The budget uses a mix of approaches to make American companies pay more federal taxes. That includes raising the corporate tax rate from 21 percent to 28 percent, the level set in the Tax Cuts and Jobs Act of 2017.

Mr. Biden is also calling for an increase in the so-called minimum business tax from 15 percent to 21 percent. That tax, which was passed by Democrats in 2022, applies to companies that report annual income of more than $1 billion to shareholders in their financial statements but use deductions, credits and other preferential tax treatments to keep their effective tax rates well below reduce statutory tax rates. per cent. White House economists estimate that raising taxes could generate $137 billion in new tax revenue over the next decade.

The president would also quadruple a 1 percent surcharge on company stock buybacks. That tax, which was also passed along party lines in 2022, would rise to 4 percent under Mr. Biden’s proposal.

The White House is also taking aim at executive pay, denying companies deductions on all compensation related to employees making more than $1 million. This goes further than current tax law, which denies such deductions only for top executives.

The budget also assumes that a global tax treaty that the United States helped broker will be reached in 2021, despite Republicans’ refusal to accept the new levy. Under that agreement, more than 130 countries pledged to introduce a minimum corporate tax rate of 15 percent that companies must pay on their foreign income. Mr Biden wants the US tariff increased from 10.5 percent, which is not in line with the agreement, to 21 percent.

Higher taxes for the richest

Since the 2020 presidential campaign, Biden has promised that none of his policies would raise taxes on households earning less than $400,000. The latest budget keeps the laser focus on the richest 1 percent.

Mr Biden wants to increase the tax rate on capital gains, such as the sale of shares, to 39.6 percent for individuals earning more than 400,000. He also renewed calls to close the so-called “carved interest” loophole, which allows wealthy hedge fund managers and private equity managers to pay lower tax rates than entry-level workers.

The budget also includes a new attempt at a version of a wealth tax, a complex concept that has long been an ambition of progressives.

The proposal would impose a 25 percent “billionaire tax” on individuals with net worth, defined as the total value of their assets, of more than $100 million. The goal is to prevent the wealthiest Americans from adopting tax strategies that allow them to pay lower tax rates than those of middle-class households.

Encouraging the Internal Revenue Service

One of Mr. Biden’s biggest priorities during his first term was revamping the Internal Revenue Service, which received an $80 billion funding boost through the Inflation Reduction Act.

Republicans have eagerly used these funds and have already managed to recover $20 billion of that money.

The White House budget restores these recoveries and expands the tax collection agency’s modernization money by an additional $104 billion through 2034.

The Biden administration has argued that investments in the IRS allow the federal government to collect more tax revenue without raising tax rates, by forcing corporations and wealthy tax evaders to pay what they owe. The Treasury Department has estimated that the so-called “tax gap” of uncollected revenues in 2021 was nearly $700 billion.