How Biden's plan to tax the rich actually benefits everyone

President Joe Biden’s plan to raise taxes on the wealthy and corporations, though receiving considerable pushback from Republican lawmakers, will actually benefit Americans as a whole by curbing economic inequity and offsetting the economic harm done by the COVID-19 pandemic, economists say.

Various outlets reported this week that Biden is planning a new tax policy proposal that would represent the most significant raise in federal income taxes in nearly three decades.

According to Bloomberg, the plan will be similar to those Biden proposed during his 2020 campaign.

Despite Republican claims, Biden’s proposal would not raise taxes on middle- or low-income Americans. Rather, the it would raise the rate of income tax for Americans making over $400,000, and increase the corporate tax from 21% to 28%. It would also expand estate taxes and raise the capital gains tax rate, which would affect only those individuals making $1 million or more a year.

Experts say Biden’s plan would increase revenue during a time when it is drastically needed.

Heather Boushey, a White House economist, told Bloomberg this week that people making less than $400,000 would not see an increase in taxes. She said increased revenue would be gained from “folks at the top who’ve been able to benefit from this economy and haven’t been this hard hit.”

“There’s a lot of room to think about what kinds of revenue we can raise,” she said.

Economists also say raising taxes on the wealthy could offset the harm done by COVID-19 to low-income Americans. Employment is up 1% for those making over $60,000, and the wealthy actually saw their financial assets, such as stocks and real estate, increase in value during the pandemic.

Ernie Tedeschi, who serves as a policy economist at the investment company Evercore ISI, told CNBC that it would be a wise policy move to tax the wealthiest Americans to offset the harm caused by the pandemic.

“It makes sense for this emergency to use progressive taxes as a way to fill in [budget] gaps,” Tedeschi said.

Sarah Bianchi, Evercore’s head of U.S. public policy, who once served as an economic aide to Biden, told Bloomberg one of the goals of the president’s proposed tax policy will be to address wealth inequity in the United States.

“His whole outlook has always been that Americans believe tax policy needs to be fair, and he has viewed all of his policy options through that lens,” Bianchi said. “That is why the focus is on addressing the unequal treatment between work and wealth.”

Larry Summers, who served as treasury secretary in the Clinton administration and White House National Economic Council director in the Obama administration, noted that Biden’s plans to raise corporate taxes in particular could relieve the burden on low-income Americans.

“Is the objective of the U.S. to win a race to the bottom in global taxation,” Summers told the Washington Post, “or is our objective to end the race to the bottom and level up corporate taxation so there could be lower burdens on working people here and everywhere else?”

A 2020 Tax Policy Center analysis of Biden’s campaign tax proposals found that they would collect $2.1 trillion in revenue over the course of 10 years, although Bloomberg notes the actual amount agreed upon by Congress is likely to be lower.

A 2019 study by David Kamin and Lily Batchelder of the New York University School of Law found that the most effective way to repair U.S. economic inequity would be to raise taxes on the rich.

“The U.S. economy exhibits high inequality and low economic mobility across generations relative to other high-income countries,” they wrote. “The U.S. will need to raise more revenues in order to reduce these disparities, finance much-needed new services and investments, and address the nation’s long-term fiscal need.”

Kamin and Batchelder found that some of the best ways to accomplish this would be by increasing the tax rates on top earners and corporations, taxing the wealthy on “accrued gains,” and implementing a “wealth tax on high-net-worth individuals.”

Experts say that Biden’s plan to raise taxes on the wealthy and corporations would likely enjoy widespread support.

Frank Clemente of the group Americans for Tax Fairness told the Hill, “If Biden were to put forward a major investment package that was financed by taxing the wealthy and corporations, there’s a good chance it would have as much popular support as his pandemic relief proposal.”

A poll conducted by the New York Times in December found that two-thirds of Americans support a tax increase for those making more than $400,000 a year.

A poll conducted by the Hill in 2019 found 59% of Americans agreeing with a proposal floated by Rep. Alexandria Ocasio-Cortez (D-NY) that the tax rate on America’s highest earners should be increased to 70%, and 64% “strongly” or “somewhat” agree with the statement, “The very rich should contribute an extra share of their total wealth each year to support public programs,” including more than half of Republicans.

A Yahoo Finance/Harris poll conducted in October 2020 found three-quarters of Americans support increasing the income tax if the revenue accrued will go toward government services, and 68% express support for such an increase if it will help pay down the U.S. national debt.

And a 2018 Gallup poll found 67% of Americans agreeing that corporations do not “pay their fair share” in federal taxes.

Published with permission of The American Independent Foundation.