Joe Biden must rethink tax pledge

Joe Biden must rethink tax pledge
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In a news interview last month, Democratic nominee Joe BidenJoe BidenTucker Carlson ratchets up criticism of Duckworth, calls her a 'coward' Joe Biden wins New Jersey primary Biden wins Delaware primary MORE made a sweeping commitment about tax policy in his potential administration when he declared, “Nobody making under 400,000 bucks would have their taxes raised.” He has to rethink this pledge, which is incompatible with his own tax plan. Adhering to this pledge would cripple efforts to address the budget imbalance of the federal government.

His own tax plan violates his recent pledge. His proposed corporate tax hikes, including a rate increase from 21 percent to 28 percent, would be carried by everyone who owns corporate stocks, including workers who hold stocks in retirement accounts. A great deal of Americans, and even those who earn below $400,000, own at least some stocks.

If his pledge is interpreted to apply only to individual taxes, his plan still runs afoul of it. Biden would curtail tax savings from itemized deductions for all taxpayers in brackets above 28 percent, which includes unmarried workers with taxable incomes above $163,300. According to an estimate by the Tax Policy Center, around 15 percent of the net tax increase in his plan would fall on households with incomes below $353,000 next year. The very rich would bear the most burden but not all of it.

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This mismatch reveals a problem with his pledge. His proposal to limit tax savings from itemized deductions is a promising way to curb distortionary tax breaks and it should not be rejected because some affected taxpayers have incomes below $400,000. While there are hefty arguments against raising the corporate tax rate, the fact that part of the burden would fall on shareholders making $390,000 is just not one of them.

If Biden adhered to his pledge if he wins, it would set budget policy in a straight jacket. To be sure, his new pledge is not as restrictive and badly conceived as the pledge that many Republicans have taken against any net overall tax increase. Nevertheless, those constraints imposed by his pledge would make it impossible to address the fiscal gap.

The government faces a serious budget imbalance that will one day force large tax increases, large spending cuts, or a combination. The imbalance has been amplified by the additional debt issued amid the pandemic. The Congressional Budget Office projected the debt will reach 108 percent of annual gross domestic product next year, exceeding the previous record in 1946. It also estimated the debt will grow explosively in future decades thanks to an aging population and rising health care costs.

Such fiscal gap is too large to be closed solely by tax increases at the top. That was recognized even before the pandemic by several commentators who supported tax increases on the rich, writing on the editorial pages of the New York Times and the Washington Post. They had warned that such tax increases on the rich would have to be accompanied by measures to impact the vast middle class. The proposals by Biden to increase Social Security and other benefits raise the need for more revenue.

If a potential Biden administration adheres to his pledge, critical action to address the severe budget imbalance will be delayed at a big cost. When action is taken, heavier burdens will be imposed on Americans across all income groups. The resolution of the dire fiscal imbalance will inevitably include sacrifices by some Americans with incomes below $400,000. No politician does the public any favors by denying that reality.

Alan Viard is a resident scholar based at the American Enterprise Institute.