Biden Eyes a Big Tax Hike on Rich Investors

By Yuval Rosenberg

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.

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