Biden Poised To Raise Taxes

For several years, Democrats have wanted to raise taxes on corporations and wealthy individuals. Now, with Biden as President and holding slim majorities in both houses, they might finally have their shot.

For several years, Democrats have wanted to raise taxes on corporations and wealthy individuals. Now, with Biden as President and holding slim majorities in both houses, they might finally have their shot.

Democrats see a tax on the rich as both an answer to Trump's tax cuts and as a way to close the gap, economically speaking. Liberal economists have predicted that a tax increase on the rich and corporations would help bolster the economy's overall performance, prompting Democrats to attempt to usher in the most significant federal tax increase in decades. Meanwhile, on the chopping block is a tax code that Democrats believe favors the wealthy at the cost of American jobs.

Changing the Paradigm

While both the White House and Democrats in Congress agree that Trump's 2017 tax cuts should be reversed so that corporations and wealthy individuals pay more in taxes, they don't agree on how much those taxes will rise and who exactly will pay them. Senate Democrats can't afford such division on details since Republicans are not likely to support any proposed tax changes. With the Senate so closely divided, Democrats must be closely aligned to be successful.

The current phase of President Biden's economic agenda includes a collection of programs that will cost between $3 and $4 trillion. The massive investments in education, infrastructure, carbon reduction and programs to aid working mothers make a Democratic consensus even more urgent. The unveiling, coming after the nearly $2 trillion economic relief bill, reveals a vital part of President Biden's plan to revitalize the economy and American industry.

For President Biden to enact his proposed agenda, he plans to utilize tax increases to raise close to $2.5 trillion in revenue. Additionally, aides have suggested that the spending increases will be paid for at least partly by federal borrowing.

Democrats have spent decades discussing raising taxes on the wealthy and corporations. However, they have faced resistance from lobbyists, business groups, and conservative activists. In referring to his plan to increase taxes, specifically on money earned through investment and inheritance, President Biden has said in a White House press conference, "I want to change the paradigm." He has said he plans to fund programs intended to help people who earn money through wages rather than through wealth. Whether he can muster the votes to enact those proposed tax hikes is another matter.

Democrats Hopeful But Divided

Liberal economists are hopeful. In the wake of the pandemic and ensuing recession, economic circumstances have put Democrats in a unique position to enact some major tax changes that might not otherwise be possible. For example, while President Biden's economic relief bill was funded entirely through borrowing, the economy is now forecasted to grow at a faster rate than it has in decades.

On the other hand, Republicans are likely to oppose any plan President Biden proposes that raises taxes. With the Senate so closely divided, Democrats would have to unite to pass legislation even considering Vice President Kamala Harris's tie-breaking vote. However, while Democrats favor tax laws changes, they are divided on the tax percentages and who should see those tax increases.

President Biden also doesn't have full support from more progressive Democrats like Bernie Sanders and Elizabeth Warren. While President Biden has promised that tax increases won't affect people who earn under $400,000, progressive allies are advocating for tax increases on a broader range of earners. Other Democrats would like to see tax alternatives, like a tax on consumption similar to those enacted in Europe. However, since that kind of tax is more likely to fall on low-income Americans than the rich, it's not likely to see wide support.

Wyden Drafts Tax Changes

Ron Wyden, the Senate's top tax writer, is currently drafting a set of bills to raise taxes. Many of them overlap with President Biden's proposed tax changes, and Wyden has said that he is prepared to raise whatever the Democratic caucus requires to move forward.

So far, Wyden's plans include major changes to Trump's tax cuts, specifically the portions that affected tax cuts on money earned abroad. Democrats have held that those tax cuts incentivized businesses to move activities offshore to avoid higher taxes. Republicans disagree, countering that the cuts helped American companies grow. However, a recent report from the Joint Committee on Taxation showed that companies paid a 2018 tax rate that was a full 8 percent lower than the 2017 rate.

As the planned tax hikes on corporations and the wealthy move forward, it's clear that Democrats will have their work cut out for them to reach a necessary consensus on percentages, taxed groups, and complementary methods of funding President Biden's overall plan.

Pine & Company CPAs see opportunity with any changes in tax law

Whether tax rates are increased, decreased or simply shifted around, all new tax laws provide opportunity for those taxpayers savvy and proactive enough plan for changes in the tax law.  This means that you need a tax advising partner to walk you through rapid changes in the tax environment and make certain that you are structured and optimized as well as possible with any new tax law change. Schedule a Call

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