Biden Eyes a Big Tax Hike on Rich Investors
President Joe Biden will propose raising the capital gains tax rate to 39.6% for those earning more than $1 million a year, Bloomberg reported Thursday. That would roughly double the current capital gains tax rate of 20% for those high-income households and, when combined with the current 3.8% surtax on investment income that helps fund Obamacare, produce a top rate of 43.4%.
The proposal is expected to be released next week, when the White House unveils its “American Families Plan” to increase spending on things like education, child care and paid leave, at an estimated cost of roughly $1.5 trillion. The capital gains tax increase is projected to raise $370 billion over 10 years, according to an analysis by the Tax Policy Center, with the revenues intended to help cover the costs of Biden’s proposed investments in what administration officials are calling “human infrastructure.”
If enacted, the tax increase would mark a significant change in how investment gains are treated in the tax code relative to labor. Biden has pledged to equalize tax rates on the two, which for many years have been unequal, with investment gains being taxed at a lower rate than labor income. During the campaign, Biden argued that it was unfair that wealthy investors paid lower tax rates on the sale of stocks and bonds than workers did on their more modest incomes derived from their jobs.
Investors react: The news sent shockwaves through Wall Street, with stocks falling sharply. Andrew Mies, chief investment officer of 6Meridian, told the Associated Press that investors were reacting to a new unknown factor. “The knowns are the economy is good and improving, earnings are good and vaccinations are going pretty well in the United States,” Mies said. “The things the market doesn’t know are tax policy, both at the corporate and individual level, and what the Fed is going to do in the next 12 to 18 months.”
Jack Ablin of Cresset Capital Management said the selling could continue, depending on how things play out. “Biden’s proposal effectively doubles the capital gains tax rate on $1mm income earners,” he said, according to CNBC. “That’s a sizable cost increase to long-term investors. Expect selling this year if investors sense the proposal has a chance of becoming law next year.”
Some investors expressed doubts about the likelihood of passing the tax increase, at least at the level being discussed today. “I think these are also trial balloons and sort of laying the stake out for future negotiations,” Doug Sandler of RiverFront Investment Group told CNBC. “If I want to get something done, the first thing I’m going to do is come with a really extreme request and then I’m going to negotiate back from that. That’s just the way politics work. I’m not going to guess we’re going to double the capital gains tax because that narrow majority in Congress, that seems too controversial to get passed, but it starts the framework that taxes are going higher.”
Biden eyeing other tax increases on the rich: Administration officials continue to debate other possible tax increases that could be used to pay for Biden’s forthcoming American Families Plan, according to The New York Times. Biden is reportedly planning to call for raising the top individual income tax rate from 37% to 39.6%, and officials are reportedly considering capping deductions for rich taxpayers or raising the estate tax.
Other elements of the plan have changed recently, the Times’s Jim Tankersley reports: “Administration officials had planned to include a health care expansion of up to $700 billion, offset by efforts to reduce government spending on prescription drugs. But they have decided to instead pursue health care as a separate initiative, a move that sidesteps a fight among liberals on Capitol Hill but that risks upsetting some progressive groups that have pushed Mr. Biden to prioritize health issues.”
Republicans Counter Biden With a $568 Billion Infrastructure Outline
Republican Senators outlined a $568 billion counteroffer to President Joe Biden’s infrastructure plan on Thursday, proposing to narrow the scope of any bipartisan package and spend roughly a quarter of the nearly $2.3 trillion that the president and Democrats say is needed.
The total for the five-year GOP framework comes in below the $600 billion to $800 billion range that Sen. Shelley Moore Capito (R-WV), who is spearheading the Republican planning, had floated last week, but Capito emphasized that it the proposal is the largest infrastructure investment her party has ever proposed. "This is a robust package,” she told reporters, adding that it is meant to serve as a starting point for bipartisan talks.
The White House said Thursday that it also sees the GOP offer as a basis for negotiations. "We certainly welcome any good faith effort and certainly see this as that, but there are a lot of details to discuss and a lot of exchanges of ideas to happen over the coming days," White House Press Secretary Jen Psaki said. But some Democratic lawmakers have already criticized the GOP plan as too small, and many have suggested it is a non-starter.
What’s in the GOP outline: Republicans have objected to Biden’s expansive definition of infrastructure, arguing that it goes far beyond traditional programs by calling for large investments to speed the transition to electric vehicles and improve caregiving for the elderly and disabled.
The two-page framework released Thursday seeks to define infrastructure along narrower, more traditional lines. “It’s important that any infrastructure legislation have adequate funding levels and not be so large as to fail to launch, which means sticking to actual infrastructure. That’s why our framework works. It serves as a realistic, thoughtful approach that addresses the core areas of infrastructure that we all agree upon,” Capito said in a statement.
Other Republicans behind the plan include Roger Wicker (MS), Pat Toomey (PA), Mike Crapo (ID) and John Barrasso (WY). Their framework includes:
• $299 billion for roads and bridges;
• $61 billion for public transit systems;
• $61 billion for ports, inland waterways and airports;
• $20 billion for railroads, including Amtrak;
• $65 billion to expand broadband infrastructure;
• $49 billion for drinking water and wastewater infrastructure and water storage;
• $13 billion for highway safety and other safety programs.
Big differences with Biden: As a reminder, Biden’s plan calls for $621 billion in funding for transportation infrastructure, including $174 billion for electric vehicles and $115 billion for road and bridge repair. So that section of Biden’s proposal alone would provide $53 billion more than the entire GOP plan, but the Republican plan would direct more than twice as much funding toward roads and bridges.
Biden’s plan also calls for spending hundreds of billions more on water projects, broadband and the electric grid — and he wants to provide $400 billion the help care for the elderly and disabled as well as hundreds of billions more for research and development, manufacturing investments and retrofitting homes and commercial buildings. You can see a comprehensive breakdown here.
What’s not in the GOP outline: The document released Thursday is vague on a key and contentious element of any infrastructure proposal — how to pay for it.
Republicans have rejected Biden’s call for higher corporate taxes and their framework does so again, saying that the 2017 Tax Cuts and Jobs Act, which lowered the corporate tax rate from 35% to 21%, should be preserved and that Republicans are against “any corporate or international tax increases.” The document also calls for keeping the cap on the deductibility of state and local taxes, which some Democrats have sought to repeal.
But the GOP framework does not include specifics on pay-fors, relying instead on broad statements of principle — federal infrastructure funding “should be fiscally responsible and based on needs," should partner with state and local governments as well as the private sector, and should "flow through existing formula programs and proven discretionary programs."
Republicans have suggested covering the costs of an infrastructure plan through fees imposed on those who use the infrastructure and by repurposing unused federal spending. “We want it to be paid for. We're not interested in raising taxes. We think that people that use our infrastructure are a lot of the solution. There's a lot of private money out there,” Capito said Wednesday.
Jobless Claims Hit Another Pandemic Low
In another good sign for the recovery, new jobless claims fell to the lowest level since March 2020, when the pandemic first began to shut down the U.S. economy.
About 547,000 people filed for unemployment benefits at the state level last week, the Labor Department announced Thursday, with another 133,000 applying for aid through the temporary Pandemic Unemployment Assistance program, bringing the total for the week to 680,000.
Progress continues: “For now, the economy is showing steady signs of recovering,” says Christopher Rugaber of the Associated Press. “Sales at retail stores and restaurants soared 10% in March — the biggest increase since last May. Federal stimulus checks of $1,400 have been sent to most adults. And Americans who have kept their jobs have accumulated additional savings, part of which they will likely spend now that states and cities have loosened business restrictions and the virus wanes.”
Ian Shepherdson of Pantheon Macroeconomics says that the drop in claims “confirms that last week’s unexpected plunge was no fluke,” adding that he expects to see “further declines over the next few months as the reopening continues, while payroll growth will accelerate markedly.”
But the numbers are still huge: About 8 million people are still out of work due to the pandemic, and 17.4 million people are receiving some kind of unemployment assistance. “Claims are extremely high” by historical standards, says Heidi Shierholz of the Economic Policy Institute, and still coming in at about three times the level seen before the pandemic.
- Welcome to Joe Biden’s Boom Economy – Alan Blinder, Wall Street Journal
- Tax Hikes Will Stifle the Recovery – Sen. Rob Portman (R-OH), Wall Street Journal
- The Debt Limit Is Back (Kind Of) – Ben White and Aubree Eliza Weaver, Politico
- Get Ready for Another Dumb Debt Limit Fight – Jonathan Bernstein, Bloomberg
- Repealing the SALT Cap Would Be More Regressive Than the TCJA – Committee for a Responsible Federal Budget
- Weatherizing Homes Could Be One of the Most Vital Legacies of Biden’s Infrastructure Plan – Joseph W. Kane and Tara Pelton, Brookings Institution
- End Welfare as We Know It — for the Upper Middle Class – Richard V. Reeves and Christopher Pulliam, Washington Post
- Biden Wants to Slash Emissions. Success Would Mean a Very Different America – Brad Plumer, New York Times
- Shortchanged: Weak Anti-Retaliation Provisions in the National Labor Relations Act Cost Workers Billions – Lynn Rhinehart and Celine McNicholas, Economic Policy Institute
- Rising Incomes Render Republican Strategy Obsolete – Michael R. Strain, Bloomberg
- We’re Asking Rich Countries to Keep Their Vaccine Promises – Tedros Adhanom Ghebreyesus, New York Times
- Here Is How the Filibuster Dies – Jennifer Rubin, Washington Post
- Biden Went Big in His First 100 Days, and Now Comes the Hard Part – Josh Wingrove and Nancy Cook, Bloomberg Businessweek