Using “the tax system is not fair” as his rallying cry during his State of the Union address last night, President Biden called for a new minimum tax on billionaires and a hike to quadruple taxes on stock buybacks.
The taxes are part of Biden’s White House plan to ensure wealthy Americans and large businesses pay their fair share of taxes, but the proposal is likely dead on arrival in the Republican-controlled House, the Raymond James Washington policy team said in a note to investors this morning.
“These proposals remain extremely unlikely, but we will be watching to see if the buyback tax enters the debt limit debate,” said Ed Mills, a Raymond James managing director and Washington policy analyst, this morning.
Biden called for quadrupling the corporate stock buyback tax from 1% to 4%, arguing that the existing low rate allows companies to pump up stock values instead of paying dividends to shareholders. Dividends are taxed at ordinary income tax rates.
Biden didn’t provide the tax rate or income thresholds in his plan to tax billionaires, but a proposal he released last year sought to institute a 20% minimum tax rate on Americans making more than $100 million a year.
Biden said in a White House briefing paper released before his speech that “in a typical year, billionaires pay an average tax rate of just 8%.”
But that number was refuted in 2019 by University of California Berkeley economists Emmanuel Saez and Gabe Zucman, who estimated the top 400 households paid an average effective tax rate of about 23% in 2018, CNN reported.
Biden also previewed the release of his upcoming budget, which is likely to call for tax increases on those households earning more than $400,000 and an increase in corporate taxes, the Raymond James policy team said.
House Speaker Kevin McCarthy wasted no time ruling out raising taxes on Americans or corporations in a speech he delivered about the debt ceiling Monday night.
“Defaulting on our debt is not an option, but neither is a future of higher taxes,” McCarthy said.
The biggest fight on the horizon is the debt limit, which already has Republicans pushing back against the notion that they intend to upend the economy, said the Raymond James team.
The U.S. government hit its debt ceiling of $31.4 trillion in mid-January, and the effort to raise it is likely to spark a contentious battle in the divided Congress, although it has been raised 78 times since 1960, according to congressional records.
U.S. Treasury Secretary Janet Yellen said in a January 19 letter to congressional leaders that her agency is taking "extraordinary measures" that will allow the country to avoid an unprecedented default on its debt for at least the next few months as lawmakers negotiate.
Biden used the State of the Union as a real-time negotiation tool. Republicans booed and McCarthy shook his head in disapproval when Biden stated that Republicans were seeking to take the economy hostage and when he blamed President Trump for 25% of the outstanding national debt.
There was also an “overwhelming consensus” that cuts to Social Security and Medicare are off the table for the debt ceiling debate,” said the Raymond James team. “We expect Republicans to continue to press for cuts to discretionary spending.
“We believe the third path is the passage of other policies that would grow the U.S. economy and increase revenues for the government—such as an energy bill and permitting reform,” the policy analysts said.
Despite the divided opinions in the Democratic party over Biden’s possible run for a second term, the analysts said the speech may serve “as the unofficial launch of his re-election campaign,” giving the president an opportunity to take a victory lap on his legislative accomplishments.
But “Biden’s optimism for his agenda stands in stark contrast to the political reality of a divided Congress, especially when it comes to Biden’s proposed corporate/individual tax changes,” said the Raymond James analysts.