President Joe Biden is poised to unveil a plan that would raise taxes on the income, investments and estates of the wealthiest Americans to levels not seen in more than four decades, a move that will trigger intense debate in Congress about whether and how to address income inequality.
Biden’s “American Families Plan,” itself featuring the biggest expansion of federal support for lower-income and middle-class Americans in decades, will be offset by a series of tax increases on the wealthy, administration officials say. The president will unveil his program in a Wednesday night speech to Congress.
To pay for a bill that could top $1 trillion, Americans earning over $400,000 will face higher marginal income tax rates. Those taking in $1 million or more will get hit with a levy of up to 43.4% on their capital gains. The last time rates got close to that, Jimmy Carter was president.
Biden is also likely to propose increases on the number of Americans subjected to the estate tax. He campaigned on closing popular tax breaks including a provision that lets appreciated assets go untaxed when they are inherited, along with eliminating the carried-interest tax break, which lets private equity managers cut their Internal Revenue Service bills.
Republicans are likely to oppose the tax increases en masse, but the White House is also risking a struggle with Democratic lawmakers. Some of those from New York, New Jersey and other high-tax states in particular were already mobilizing to demand relief for their constituencies even before Biden’s official announcements. With the 50-50 Senate and a narrow margin in the House, monthslong negotiations loom.
Biden’s individual tax measures, coming on top of corporate tax hikes released last month that go to pay for his $2.25 trillion infrastructure-focused “American Jobs Plan,” could also pose a test for markets. News of the capital-gains measure sent stocks sliding Thursday, before a Friday rebound.
“The administration’s policies are no longer so unambiguously positive now that it is pursuing tax hikes on corporates, individuals and investors to fund stimulus 2.0 (infrastructure) and 3.0 (social programs),” JPMorgan Chase & Co. strategists led by John Normand wrote in a note Friday on market implications.
Democrats are eager to raise taxes on high-earners whom they say have been able to pay less than their fair share of the burden for decades, and further benefited from President Donald Trump’s 2017 tax cut, while investment in public services and the social safety net have languished.
Republicans counter that higher rates would depress economic activity. While they’re open to talks on a slimmed-down, targeted infrastructure package, a group of them last week suggested offsetting the cost with fees and repurposing unspent Covid-19 relief money.
“President Biden’s proposed capital-gains tax increase would dissuade investment, leading to slower economic growth while limiting worker productivity and wage growth,” Senator Pat Toomey, a Pennsylvania Republican, said in statement.