Democrats will likely prove successful in raising individual income tax rates and in strengthening audits of wealthy Americans as they work on overhauling the U.S. tax code in coming months.
That’s a key takeaway from a survey of 15 current and former White House and congressional aides specializing in tax policy completed by Bloomberg this month. A tax on unrealized capital gains, as envisioned by Senate Finance Committee Chair Ron Wyden, was deemed impossible to get through Congress, the survey showed.
President Joe Biden is planning what would amount to the biggest set of tax increases since 1993 to help pay for infrastructure, clean- energy and social initiatives as part of his longer-term follow-up to the $1.9 trillion pandemic-relief package. With Republicans voicing opposition, Democrats must secure their moderate members’ support in the 50-50 Senate, making the tax program politically challenging to pull together.
“There is fairly strong consensus to tax the rich and corporations more—but a fairly strong consensus means you need to get all 50,” said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center and former counsel with the Joint Committee on Taxation. “Tax increases are hard, even good tax increases. Raising taxes harms some people.”
A corporate-tax hike, set to be a key component of the Biden plan, was seen as slightly more difficult to enact than boosting individual rates, with expanded levies on estates ranking just behind. The most likely tax change of all, according to the experts, is an expansion of credits for families, something that would add to the program’s total costs.
Another easy win, the survey suggests, is strengthening enforcement at the Internal Revenue Service. Treasury Secretary Janet Yellen said Tuesday that, along with tax-policy changes the administration plans, she would support funding for stepped-up IRS collection efforts.
The following is a ranking of tax measures, from the most likely to pass by the November 2022 midterm elections to the least likely. Respondents were asked whether each item was likely to be enacted, possible to get through, or not going to make it. With three points for being likely, a top score is 45.
1. Family Tax Credits (45 points)
All 15 survey participants viewed passage of an expansion in tax credits for families as likely. This was already a component of the pandemic relief bill signed this month. That featured a one-year expansion of the child tax credit, dependent care credit and the earned income tax credit.
Democratic lawmakers want to make those changes permanent—which would come with a price tag of $1.6 trillion for the child tax credit alone, according to a Tax Foundation estimate. Democrats are hoping that the increase for 2021 will prove to be so popular with voters that they’ll be able to secure an extension for beyond this year.
2. IRS Audits (44)
Audit rates at the IRS have plummeted in recent years, with Commissioner Chuck Rettig telling a congressional panel earlier this month that the agency has lost 15,000 enforcement personnel since 2010. Democrats in Congress have been proposing ways to increase audit levels by adding to the agency’s enforcement workforce and mandating higher examination rates of top earners. Collecting unpaid taxes from the top 1% alone could generate an additional $175 billion in tax revenue, according to a recent study.
3. Individual Income (42)
Biden on the campaign trail called to raise the top personal income tax rate to 39.6% for those earning $400,000 or more. However, the administration has yet to specifically define the thresholds for individuals as well as households.
4. Corporate Tax (38)
Biden is pushing to roll back part of President Donald Trump’s massive corporate tax cut from 2017, taking it up to 28% from 21%. That could raise $727 billion over a decade, according to the Urban-Brookings Tax Policy Center. Some respondents were skeptical that magnitude of an increase could get through Congress, indicating it could end up around 25%.
5. Levy on Estates (36)
Biden’s campaign-trail proposals reduced the threshold at which the estate tax applies, in addition to increasing the rate to 45%. David Kamin, deputy director of the White House National Economic Council, separately indicated in an interview last week that the administration is looking at removing a “loophole” for the ultra wealthy known as step-up-in-basis—which revalues assets such as stocks and real estate at market prices, rather than their original purchase cost, reducing tax liabilities.
5. Made in America Credit (36)
Tied for fifth on the list as most likely to be enacted is a push from Democrats for tax benefits for companies that build factories in the U.S. or increase domestic manufacturing capacity. Both changes would check of two priorities: addressing wealth inequality, as well as providing incentives for jobs at home.