Biden targets corporations, averts political flashpoints in tax proposal
President Biden is avoiding tax hikes that could divide Democrats in his plan to pay for a $2 trillion infrastructure proposal, focusing on corporations and evasion instead of personal incomes.
Biden on Wednesday unveiled his long-anticipated plan to invest trillions of dollars in the U.S. economy and impose several tax measures meant to raise enough revenue to cover the cost of the plan within 15 years.
While Biden had been expected to target high-earners and well-to-do households with higher taxes, the president largely avoided hikes that risk drawing untenable political backlash as Democrats face a narrow margin for dissent.
Biden’s package does not include any personal income tax increases despite the president proposing hikes for households making more than $400,00 during the campaign. The measure also does not include planned hikes to the estate tax and taxes on gains from financial trades that Biden backed on the trail.
Taking those personal cuts off the table may help Biden and Democrats temper Republican criticism and keep the bill popular among voters.
GOP lawmakers have argued that the U.S. economy is still too weak to handle tax hikes despite touting its strength in opposition to Biden’s stimulus bill. Democrats have countered that making investments in the economy with revenue from those who fare well during the pandemic make sense, especially with interest rates still low.
Biden also did not include a repeal of the $10,000 cap on the state and local tax (SALT) deduction, originally imposed via former President Trump’s tax law, despite pressure from Democrats in high-cost states such as New York and New Jersey.
Supporters of the full SALT deduction say it’s a crucial cushion for low- to moderate-income households in states with high local taxes and a fair way to account for certain states providing more federal revenue than they receive.
Critics of the deduction, which includes most of the Republican Party, call the full SALT deduction a giveaway to high-earning households and subsidy for poor state fiscal policies.
Instead of adjusting personal income taxes, Biden proposed raising the corporate income tax rate to 28 percent from 21 percent, the level set by Trump’s tax law. The corporate income tax rate was 35 percent before the 2017 tax cut, which was universally opposed by House and Senate Democrats.
Biden’s plan would also raise the minimum tax for multinational corporations with U.S. operations to 21 percent, make it harder for U.S. companies to use foreign headquarters to avoid federal taxes, enact a minimum 15 percent tax on reported income from large corporations, and eliminate various loopholes, subsidies and deductions that the White House says encourage offshoring jobs, keeping assets abroad, and support fossil fuel production.
Biden’s proposal additionally will boost IRS funding for enforcement of tax laws and investigations into tax evasion, both of which have fallen substantially due to agency budget cuts.
“A number of the provisions in the 2017 law also created new incentives to shift profits and jobs overseas. President Biden’s reform will reverse this damage and fundamentally reform the way the tax code treats the largest corporations,” the White House said.
Biden’s proposal won praise from several prominent left-leaning tax advocacy groups, an encouraging sign for its reception by Democratic lawmakers.
Frank Clemente, executive director of Americans for Tax Fairness, said Biden “hit a home-run” with a plan that would “begin dismantling the nation’s rigged corporate tax system, which for too long has allowed huge corporations to dodge paying their fair share of taxes and encouraged offshoring of jobs and profits.”
Maura Quint, executive director of Tax March, called Biden’s plan “a step toward a tax code that puts the American people first—not the wealthy, well-connected elites who have benefited for too long from a broken tax system and Reagan-era economics.”
But while Biden’s tax plan may appeal to most Democrats, the president is still vulnerable to objections on the margins that could sink the bill.
Democratic Reps. Tom Suozzi (N.Y), Josh Gottheimer (N.J.) and Bill Pascrell (N.J.) said Wednesday that they will vote against Biden’s plan if it doesn’t remove the SALT deduction cap, which would kill the measure in the House if no Republican votes for it.
Sen. Joe Manchin (D-W.Va.) also said he would oppose the bill if Biden and Democrats don’t make a genuine effort to win Republican votes but that he won’t hold the president responsible for GOP obstructionism.