Who Gets Hit by Biden’s Tax Hike on Top Earners

Who Gets Hit by Biden’s Tax Hike on Top Earners

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Plus, the U.S. economy hits the accelerator
Thursday, April 29, 2021
 

Who Would Get Hit by Biden’s Tax Hike on Top Earners

President Biden has proposed raising the top individual income tax rate, but he has also pledged that no one making under $400,000 would see their taxes go up. Now, the White House is clarifying just who would be affected by Biden’s proposed tax hike.

Axios and Bloomberg News report that Biden’s proposed increase in the top tax rate from 37% to 39.6% would apply to individuals making more than $452,700 in 2022 and married couples with taxable income of at least $509,300, according to a White House official. That means the higher top tax rate would apply to less than 1% of taxpayers. Under the current tax brackets for 2021, the top marginal rate of 27% applies to individuals making $523,601 or more and couples earning $628,301 or more.

The spin:
"The details mean the tipping point for an individual is even higher than the $400,000 previously laid out," Bloomberg’s Josh Wingrove and Laura Davison write. But Axios notes that the new details mean that Biden's promise not to raise taxes on Americans making less than $400,000 only applies to individuals, and that "two married individuals, who each have a taxable income exceeding $255,000, would see the portion of their earnings above that figure taxed at the highest rate."

That could add to the political challenges the president faces in getting his proposals enacted, Axios’s Hans Nichols suggests, "since some Democrats in high-income areas will have to explain to voters who individually might make less than $400,000 that their family could still be subject to Biden's tax hike."

Defying Biden, Some Congressional Democrats Still Seek to Expand Medicare

President Biden didn’t include major health care reforms in his new $1.8 trillion American Families Plan. Congressional Democrats are planning to push for them anyway, The Washington Post’s Tony Romm and Seung Min Kim report.

The Democratic lawmakers are seeking to lower the Medicare eligibility age to 55 or 60, expand the health services offered under the program and allow the government to negotiate prescription drug prices with pharmaceutical companies.

Biden’s latest plan includes $200 billion to extend increased Affordable Care Act premium subsidies for people who buy their own health insurance. A fact sheet released by the White House emphasized that the president still supports letting Medicare negotiate prices, lowering premiums and deductibles for those who buy coverage on their own, lowering the Medicare eligibility age to 60 and creating a public option for health insurance — but most of those large-scale reforms were left out of Biden’s latest plan, despite pressure from dozens of Democratic lawmakers.

Why it matters:
The continued pushes by congressional Democrats for larger health care changes "threaten to create even more political tension around a package that is already facing no shortage of it," the Post’s Romm and Kim write. "The early efforts reflect a broader belief among congressional Democrats that they must more aggressively seize on their narrow but powerful majorities to push policies that long have been stalled in Washington — no matter their cost. … But health-care revisions are likely to present a significant challenge, threatening to open rifts not just between the two parties but within the Democratic caucus itself. In an early sign of trouble, Sen. Joe Manchin III (D-W.Va.) told The Washington Post on Wednesday that he opposes expanding Medicare eligibility even as he supports broader adjustments to the Affordable Care Act."

In Bipartisan Vote, Senate Approves $35 Billion for Water Infrastructure

There are plenty of doubts about the ability of lawmakers to work together on a bipartisan basis in today’s political climate, especially when it comes to President Biden’s remarkably expansive proposals on infrastructure and social welfare, but 89 senators were able to agree on Thursday to support a bill to improve water infrastructure in the U.S.

Just two senators voted against the $35 billion measure, which would go toward existing programs that improve water quality, with a special focus on rural areas.

Some lawmakers saw the agreement as a good sign. "The bottom line is very simple: We are moving forward, wherever we can, in a bipartisan way," said Senate Majority Leader Senator Chuck Schumer (D-NY). "So let it be a signal to our Republican colleagues that Senate Democrats want to work together on infrastructure, when and where we can."

The problem supporters of bipartisanship face, though, is that Biden’s plans are on an entirely different scale than the water improvement bill and involve new programs and vastly higher levels of spending. And in the wake of partisan bickering over Biden’s plans, the desire to work on a bipartisan basis may be waning in the White House. As Lisa Lerer and Annie Karni of The New York Times report Thursday, Biden appears to be undergoing a change of heart as he embraces the idea of being a transformational leader.

"Now 100 days into his presidency, Mr. Biden is driving the biggest expansion of American government in decades, an effort to use $6 trillion in federal spending to address social and economic challenges at a scale not seen in a half-century," they say. "Aides say he has come into his own as a party leader in ways that his uneven political career didn’t always foretell, and that he is undeterred by matters that used to bother him, like having no Republican support for Democratic priorities."

US Economy Hits the Accelerator

Economic growth is picking up speed, with GDP expanding at a rate of 1.6% in the first quarter of 2021, up from 1.1% in the fourth quarter of 2020, the Bureau of Economic Analysis announced Thursday. On an annualized basis, first quarter growth was a vigorous 6.4%, compared to 4.3% the quarter before.

Spurred in part by Covid relief payments from the federal government, a boom in consumer spending helped push economic output to $19.1 trillion, close to its pre-pandemic level of nearly $19.3 trillion. Personal consumption rose at an annualized rate of 10.7% during the first three months of the year, the second fastest clip in 50 years, while spending on durable goods rose by 41.4%.

"Rising vaccinations, faster job growth and two rounds of federal stimulus payments combined to supercharge household spending," Bloomberg’s Reade Pickert said.

Business investment and housing construction surged, too, at rates of 9.9% and 10.8% respectively.

A separate report from the Labor Department showed that new jobless claims extended a three-week downward trend, hitting a new pandemic low. About 553,000 people applied for unemployment benefits in state systems last week, and another 122,000 applied through the temporary Pandemic Unemployment Assistance program, bringing the total to 675,000.

More growth ahead: Economists are expecting to see even higher growth in the second quarter. Experts polled by Bloomberg predict a growth rate of 9.6% during the April through June period, while others are projecting rates over 10%.

"We are seeing all the engines of the economy rev up," Gregory Daco, chief economist at Oxford Economics, told the Associated Press. "We have an improving health environment, fiscal stimulus remains abundant and we are starting to see rebounding employment."

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the GDP report was likely the first in a series. "It’s good news, but the better news is coming. There’s nothing in this report that makes me think the economy won’t grow at a gangbusters pace in the second and third quarter."

Shepherdson also said that he expects the recovery to rely less on government spending moving forward: "This demonstrates the value of government intervention when the economy is on its knees from Covid. But in the coming quarters, the economy will be much less dependent on stimulus as individuals use the savings they’ve accumulated during the pandemic."

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