Biden Plans First Major Tax Hike Since 1993

Biden Plans First Major Tax Hike Since 1993

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Plus, the president names a new Covid relief czar
Monday, March 15, 2021
 

Biden Names Sperling as Covid Relief Czar

President Joe Biden on Monday tapped economist Gene Sperling, who served as head of the National Economic Council in both the Clinton and Obama administrations, to oversee implementation of the newly signed $1.9 trillion Covid rescue plan.

Sperling’s job will be to ensure that the money gets distributed quickly and in a way that maximizes its impact and minimizes waste. “Gene will be on the phone with mayors, governors, red states, blue states — a source of constant communication, a source of guidance and support, and above all, a source of accountability for all of us to get the job done," Biden said in announcing the appointment from the White House.

The Sperling appointment comes as the administration launches a multi-stop “Help Is Here” tour, with Biden, Vice President Kamala Harris and their spouses attending events across seven states this week to tout various elements of the new Covid rescue package — and with the administration reportedly mapping out a longer-term sales pitch as well.

Biden said that the country will reach “two giant goals” over the next 10 days: 100 million Covid vaccine shots in arms and 100 million relief payments delivered. “Shots in arms and money in pockets. That’s important,” Biden said. “The American Rescue Plan is already doing what it was designed to do: make a difference in people’s everyday lives.”

Why it matters:
Biden is betting that, now that his American Rescue Plan has been signed into law and its $1,400 direct payments have started landing in people’s bank accounts, he can convince the public that government can be a force for good in their lives. To do that, his new law has to work — and, to maximize its political benefit to Democrats, it has to be seen as working.

"It's one thing to pass a historic piece of legislation like the American Rescue Plan, and it's quite another to implement it. And the devil is in the details. It requires fastidious oversight to make sure the relief arrives quickly, equitably and efficiently with no waste or fraud,” Biden said.

He later added: “We have to prove to the American people that their government can deliver for them and do it without waste or fraud.”

Biden used his speech Monday to slam the Trump administration’s implementation of the March 2020 Cares Act, saying that its attacks on accountability had resulted in the Paycheck Protection Program for small businesses becoming a “a free-for-all for well-connected companies” that left behind businesses that needed help the most. “We will not let that happen this time, Biden said.

Sperling’s role, similar to cone that Biden himself had in overseeing the Obama administration’s $800 billion stimulus plan in 2009, could be crucial in determining both how well the massive Covid spending plan works and public perception of the law. “With a flood of nearly $2 trillion in government spending, problems and mistakes are always a possibility,” The Washington Post’s Tyler Pager says, “and Republicans will be on the lookout for examples of misspent funds.”

Implications for OMB: Sperling had been under consideration to lead the White House Office of Management and Budget after Neera Tanden withdrew her nomination for that post. But the idea of Sperling as budget chief “received major pushback from the Hill, according to multiple sources involved or aware of the discussions,” Politico’s Laura Barrón-López and Ben White write.

“Sperling found himself at odds with progressives in recent years for his role in negotiations on various deficit reduction efforts,” Barrón-López and White add. “But he has moved further left in recent years, advocating for massively expanded spending to fight Covid and assist an economy that remains around 11 million jobs short of the number that would have existed without the pandemic. When former Obama Treasury Secretary Larry Summers penned an op-ed questioning whether the latest stimulus was too large, Sperling was quick to respond that he believed it was not.”

Sperling’s appointment as American Rescue Plan czar leaves Shalanda Young, a longtime congressional budget aide and Biden’s current nominee for deputy budget director, as the most likely pick to head OMB. The White House has already said that, once confirmed as deputy director, Young would likely be made acting director of the budget office.

Biden Plans First Major Tax Hike Since 1993: Report

The Biden administration is turning to its next major initiative, a long-term economic program that will involve both substantial new spending and significant increases in taxes for the first time in a generation, Bloomberg’s Nancy Cook and Laura Davison reported Monday.

“Unlike the $1.9 trillion Covid-19 stimulus act, the next initiative, which is expected to be even bigger, won’t rely just on government debt as a funding source,” Cook and Davison wrote. “While it’s been increasingly clear that tax hikes will be a component ... key advisers are now making preparations for a package of measures that could include an increase in both the corporate tax rate and the individual rate for high earners.”

The proposal will reportedly include public investments infrastructure, green energy and education, as well as efforts to strengthen the social safety net. At the same time, the Biden administration will seek to reform the tax system to address long-term challenges including declining federal revenues relative to the size of the economy and growing inequality.

Biden’s proposed plan is expected to include:

* Repealing some parts of the 2017 Tax Cuts and Jobs Act;
* Raising the corporate tax rate to 28%, up from its current 21%;
* Increasing the personal income tax rate for those earning more than $400,000 per year;
* Increasing the capital gains tax for high-income investors;
* Expanding the estate tax.


    White House economic adviser Heather Boushey said Monday that Biden doesn’t intend to raise taxes on those earning less than $400,000, a pledge that Biden himself made during that 2020 campaign. For those making more than that amount, many of whom have done well during the Covid crisis, “there’s a lot of room there to think about what kinds of revenue we can raise,” she told Bloomberg TV.

    Covering some costs, but not all: Estimates for the cost of Biden’s still-developing spending bill start at $2 trillion and move up quickly, with some analysts saying $4 trillion seems like a likely final number. The tax increases, however, aren’t expected to be as large. An analysis by the Tax Policy Center of Biden’s proposed tax increases from his campaign platform said they could raise a bit more than $2 trillion, but one former Biden adviser told Bloomberg that Democratic lawmakers might settle on about $500 billion in tax hikes.

    The Biden team is expected to argue that some types of spending must be paid for but others do not, especially in an era of persistently low interest rates. Changes to the safety net, such as a permanent increase in the child tax credit, may be attached to specific revenue increases, while investments that offer returns over a long time horizon, such as infrastructure and energy projects, may be financed by deficit spending.

    Yellen wants deficit reduction, but not quite yet: Treasury Secretary Janet Yellen said this weekend that whatever form revenue increases may take, she wants to reduce the federal budget deficit, though the timeframe is a little hazy. “Over time, I expect that we will be putting forth proposals to get deficits under control,” she said on ABC’s “This Week with George Stephanopoulos.” Yellen added that the administration hasn’t decided whether to push for a wealth tax, such as the one proposed by Sen. Elizabeth Warren (D-MA).

    Yellen said that she isn’t overly concerned with the cost of running large deficits right now. “When I think about the burden of debt, I think about it mainly in terms of the interest payments that the government needs to pay,” she said. “And in spite of the fact that the debt has increased substantially, interest payments relative to the size of the economy have remained quite low. No higher than they were back in 2007.”

    As part of the effort to raise revenues to help pay for at least part of Biden’s agenda, Yellen is working with other countries to establish a global minimum tax on multinational corporations, The Washington Post’s Jeff Stein reported Monday. The pursuit of a minimum tax is driven in part by concerns that companies will shift profits away from the U.S. if corporate tax rates are increased. But there will no doubt be powerful resistance to the effort, which is being managed through the Organization for Economic Cooperation and Development, and business interests including the U.S. Chamber of Commerce are already lobbying against it.

    A bipartisan effort? Biden and some Democratic lawmakers want to make the next major economic package a bipartisan project, but Republicans aren’t showing much interest in more spending or tax hikes. Rep. Kevin Brady of California, the top Republican on the House Ways & Means Committee, said that any effort to “to tax investment of capital gains at marginal income rates” would be a “terrible economic mistake.” Senate Minority Leader Mitch McConnell (R-KY) said that following a “robust discussion about the appropriateness of a big tax increase,” he expects Democrats to use reconciliation to pass the next big bill, eliminating the need to gain any GOP support.

    Chris Krueger of Cowen Research said in a note Monday that he expects the next big spending bill to play out much like that last one: “Fiscal policy shifting into a new gear with the $1.9T relief bill now in the rearview mirror BUT we suspect a very similar road, ie we will have 3-4 weeks of bipartisan optics and then Democrats will likely drop the reconciliation hammer once Republicans object to tax increases or policies too ‘green’ on the infrastructure side. Basically the sequel to the relief process.”

    Goldman Sachs Projects 8% Growth This Year

    Analysts at Goldman Sachs are predicting that the American Rescue Plan will help spur eye-popping economic growth this year.

    “We have raised our GDP forecast to reflect the latest fiscal policy news and now expect 8% growth in 2021 (Q4/Q4) and an unemployment rate of 4% at end-2021 — the lowest among consensus forecasts — that falls to 3.5% in 2022 and 3.2% in 2023,” Goldman economists said in a note Sunday, according to Axios.

    While Goldman’s outlook may be the most bullish on Wall Street, many analysts agree that the U.S. will see growth unlike any in many years. “The US economy is going to once again become the global locomotive,” Gregory Daco, chief US economist at Oxford Economics, said. Daco, who expects the U.S. economy to grow at a rate of 7% this year, added that the extraordinary expansion “will help pull the rest of the world out of this Covid crisis.”

    IRS Failed to Collect $2.4 Billion in Taxes From Millionaires: Watchdog

    The Internal Revenue Service has failed to collect more than $38.5 billion from taxpayers earning more than $200,000 a year — and more than $2.4 billion from taxpayers with incomes over $1.5 million, according to a new report from a Treasury Department watchdog highlighted by Bloomberg News.

    Bloomberg’s Laura Davison reports:

    “Auditors were only able to recoup about 39% of the more than $4 billion in unpaid taxes owed by a group of rich taxpayers with an average annual income of nearly $1.6 million, the report found. The findings suggest that the IRS should place more emphasis on a taxpayer’s income when determining whether to pursue an audit case, the Treasury Inspector General for Tax Administration said in the report released Monday. …

    “The findings are the latest in a series of government accountability reports that recommend the IRS do more to pursue high-income taxpayers after audit rates dipped to historic lows in recent years. The dearth of examinations has prompted Democrats in Congress to pursue legislation that would mandate higher audit levels of businesses and wealthy individuals.”

    The watchdog report made seven recommendations that it said could help the IRS improve collection from wealthy taxpayers. It suggested, for example, that the agency could use income information to better identify taxpayers who can pay their delinquent taxes.

    The report found that many high earners owe little relative to their incomes, but said that the IRS does not prioritize income when deciding which cases to pursue, instead placing more significance on factors such as the dollar amount of the balance owed. “It is the IRS’s belief that it is effectively addressing noncompliance by high-income individuals by focusing on the size of the amounts owed,” the report said. “As subsequently shown, this assumption is faulty.”

    IRS management agreed with just two of the seven recommendations but said it plans to evaluate its models and consider additional income factors to improve its ability to predict recovery of delinquent taxes.

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