Biden’s Tax Plan: Who Really Pays More?

By Yuval Rosenberg

Who Would Pay More Under Biden’s Tax Plan?

Joe Biden’s tax plan would have high earners paying
significantly more, with the top 1% of households shouldering 80%
of the increase while those earning less than $400 would see no
change on average, according to a new
analysis by the Penn Wharton Budget Model.

The basics of Biden’s proposals: Biden’s tax plan calls
for repealing elements of the 2017 Republican tax law, including
restoring the top income tax rate to 39.6%, where it was before the
new law cut it to 37%. Biden would also raise the corporate tax
rate from 21% to 28%, subject earnings over $400,000 to the Social
Security payroll tax and treat capital gains and dividends the same
as earned income, among other proposals.

Who gets hit: Under Biden’s plan, the effective tax rate
on the top 0.1% of earners — those now making roughly $3.3 million
a year or more — would rise by 12.4 percentage points to 43%, the
Penn Wharton model says. Households earning more than $400,000
would see their after-tax incomes decrease by 17.7% on average,
compared to a 0.9% decrease for those earning $400,000 or less.

The drop for the latter group is not due to direct tax increases
but is the result of lower investment returns and wages projected
under the Pen Wharton model as a consequence of Biden’s corporate
tax hike. “Relative to current law, the Biden plan leaves
the income and payroll taxes of almost all households below the
95th percentile of income unchanged,” the analysis says.

The big picture for the federal budget: In all, Biden’s
policy plans would raise $3.375 trillion in additional revenue over
10 years, the Penn Wharton model finds. Biden’s corporate tax
increase is the biggest revenue raiser, projected to generate more
than $1.4 trillion over 10 years, followed by his payroll tax plan
($992.8 billion) and individual income tax plan ($944 billion).

Biden’s platform would also increase spending by $5.35
trillion, the report says. The largest areas of new spending would
be education ($1.9 trillion over 10 years) and infrastructure ($1.6
trillion). Factoring in the macroeconomic and health effects of
Biden’s platform, the report projects that by 2050, federal debt
would decrease by 6.1% and gross domestic product would rise
by 0.8% relative to current law.


Big spending increases: As The Wall Street
Journal’s Jacob M. Schlesinger and Eliza Collins

note, Biden’s proposed budget is more than double
what Hillary Clinton proposed as the 2016 Democratic nominee. “This
is the largest proposed spending increase by a presidential nominee
since George McGovern” in 1972, Penn Wharton Budget Model’s Kent
Smetters told the Journal.

Schlesinger and Collins provide some additional context: “If
fully enacted, the Biden plan would mean federal spending would
equal nearly a quarter of all economic activity in the U.S. That is
up from 21% in 2019, but well below the jump to 30% this year amid
the pandemic,” they write. “It is also below the level of
government spending in most of the world’s developed countries—and
far short of the social democracies of Europe, where the public
sector in many countries equals roughly half of GDP.”

Biden aides also tell the Journal that he is committed to
avoiding a continued expansion of the national debt, pointing to
that as an area of contrast with President Trump. At the same time,
Biden’s camp “has left itself wiggle room, by saying that their
commitment to paying for new spending only covers plans they
consider permanent, and needn’t apply to short-term stimulus to
counter the recession,” Schlesinger and Collins report. “Aides also
say that some big-spending proposals—such as fixing crumbling
infrastructure—are intended to last only a few years, and wouldn’t
expand the budget over the long run.”

The bottom line: The Penn Wharton Budget Model’s numbers
refute a key Trump attack line against Biden while pointing up some
differences between the two candidates on taxes. “The Trump
campaign has run ads saying Biden’s increases would crush
middle-class families, but the data show there would be little
effect for most who earn less than $400,000,” Laura Davison of
Bloomberg News
writes. “Trump has said he wants to cut taxes
again, but hasn’t released a plan on how he would do that.”

You can dig into the details of Penn Wharton Budget Model
analysis
here.

Trump Signs New Order to Lower Drug Prices

President Trump signed an executive order on Sunday aimed at
cutting prescription drug prices by tying them to those in certain
other countries.

“My Most Favored Nation order will ensure that our Country gets
the same low price Big Pharma gives to other countries. The days of
global freeriding at America’s expense are over,” Trump said in a

tweet Sunday.”

Reuters explains:

“The latest step, coming less than two months before the Nov.
3 presidential election, would replace a July 24 Trump executive
order.
“It extends the mandate to prescription drugs available at a
pharmacy, which are covered under Medicare Part D. The July version
focused on drugs typically administered in doctors’ offices and
health clinics, covered by Medicare Part B.
“Specifically, it would pay a price for a drug that matches
the lowest price paid among wealthy foreign governments. Medicare,
the government healthcare program for seniors, is currently
prohibited from negotiating prices it pays to drugmakers.”
“It also requires issuing new federal rules, a complex process
that might not be done by Election Day. Determining prices paid by
other countries could be challenging as negotiations between
governments and drugmakers often are kept confidential.”

Trump’s order comes after his earlier order was delayed as the
administration allowed the pharmaceutical industry to respond with
a proposal of its own. But talks with the industry’s largest trade
group, PhRMA, reportedly broke down last week. The trade group
called Trump’s order “a reckless attack on the very companies
working around the clock to beat COVID-19.”

Larry Levitt, executive vice president for health policy at the
Kaiser Family Foundation, said in a tweet that Trump’s order
doesn’t do anything on its own. “It has to be followed up by
regulations, which will take time,” he wrote. “Trump has a history
of bold talk on drug prices, only to pull back when it comes to
putting actual regulations in place.”

Read more at
Reuters or
Politico.

House to Vote on Stopgap Spending Bill Next Week

House Democratic leaders are planning a vote next week on a
stopgap spending bill to keep the government funded and prevent a
shutdown at the end of the month, House Majority Leader Steny Hoyer
(D-MD) said.

Bloomberg’s Erik Wasson
reports:

“The bill has not yet been formally scheduled because a
draft hasn’t been finished. Republicans and Democrats have yet to
agree on how long the stopgap will last until and on several minor
tweaks to current spending levels. …

“Senate Republicans and the administration favor a
temporary funding bill lasting past the election into December,
given that Congress has few scheduled days in session in November.
Some Democrats are seeking a stopgap into next year, when they hope
to gain control of the Senate and White House and to have more
power over final appropriations bills for the year.”

A vote next week will leave the Senate enough time to also
pass the spending legislation by the end of the month, Hoyer
said.

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