The so-called K-shaped recovery, in which wealthier Americans thrived even as low-income and many middle-class workers suffered from job losses, evictions, food insecurity and health risks associated with working in-person jobs during Covid-19, has reinforced the administration’s intentions.
The richest 1% of U.S. households added more than $4 trillion in wealth last year as stocks hit record highs and property values swelled, fueled in part by record-low interest rates. The bottom 50% saw their net worth gain by a much-smaller $470 billion—and that was bolstered by the extraordinary income support provided in the March 2020 Cares Act.
A new paper from the left-leaning Economic Policy Institute showed that 80% of job losses in 2020 were concentrated among the lowest 25% of wage earners, while the workers in the top half of the distribution saw gains in employment.
“It is always true that recessions hit low- and middle-income people harder, but I have never seen anything like this,” said Heidi Shierholz, the institute’s policy director and a former chief Labor Department economist.
Republicans warn that higher taxes will hold back the recovery. The U.S. Chamber of Commerce says boosting levies on companies will “make the United States a less attractive place to invest profits and locate corporate headquarters.”
Republican Warning
“Whatever the new normal is we return to after Covid-19, I think it is important for the government to stay as far out of the way as possible to allow the economy to find its footing,” said Chris Campbell, a former Senate Republican aide who served in the Treasury during the Trump administration.
Senate Minority Leader Mitch McConnell said last week there wouldn’t be bipartisan support for higher taxes, and predicted Democrats will use the reconciliation process—which allows bills to pass the Senate with a simple majority—for their proposals.
One tax issue on which lawmakers from both parties agree is the potential for toughening IRS enforcement. A Treasury Department watchdog report showed last week that the Internal Revenue Service has failed to collect more than $2.4 billion from wealthy individuals who owe the federal government back taxes.
Biden’s Shift
A National Bureau of Economic Research working paper this month separately indicated that random IRS audits are missing most tax evasion through offshore centers and pass-through businesses such as partnerships and limited-liability firms.
Biden’s current determination marks a shift in a decades-long political career with few episodes of pushing for higher taxes. On the presidential campaign trail he drew a distinction with liberal competitors’ plans for a wealth tax, and as vice president he cut a deal with Republicans in late 2012 to make permanent 82% of the tax cuts originally passed by President George W. Bush.
But liberals are fully behind his efforts now.
“We have seen him propose, fight for, sign, and sell one of the most progressive pieces of legislation in three generations,” said Senator Elizabeth Warren in an interview, referring to the pandemic-relief plan. “There is momentum now for real change, and tax policy is a critical part of that change.”
—With assistance from Laura Davison and Alex Tanzi.
This article was provided by Bloomberg News.