An exceptional year for wealthy Americans, at least in terms of their financial health, just got better.
If West Virginia Senator Joe Manchin votes against President Joe Biden’s signature economic package, as he said he would on Sunday, rich Americans will escape any tax hikes, saving the top 0.1% hundreds of billions of dollars over the next decade.
“To say my clients were celebrating is the wrong word to use,” said Steven Winter, a partner at BDO who primarily advises hedge funds and private equity firms. “It was a sigh of relief.”
Democrats had designed a $1.75 trillion bill aimed at narrowing the widening wealth gap by enhancing tax credits for children and low-income adults while raising revenue from the wealthy and corporations. The latest bill’s three most expensive items for the super-wealthy, including a surtax on incomes above $10 million, would raise more than $640 billion over the next decade, according to the Joint Committee on Taxation.
‘Meaningful Step’
Though many of Democrats’ more radical tax proposals were scaled back or dropped in negotiations, the bill would be “a meaningful step for reducing inequality,” said Carl Davis, research director at the left-leaning Institute on Taxation and Economic Policy. An analysis by the group estimated the plan’s changes to the child tax credit and earned income tax credit would boost incomes of the poorest fifth of Americans by more than 10%.
Without passing the bill, known as Build Back Better, Biden is unlikely to achieve his often-stated goal of leveling the economic playing field between the wealthy and everyone else. “We’re going to reward work, not just wealth,” he told Congress when he unveiled the package in April. “I think you should be able to become a billionaire and a millionaire, but pay your fair share.”
Republicans, who uniformly oppose Biden’s bill, were gleeful that it might fail. “The single biggest Christmas present Washington Democrats could give to the American people is to kill their reckless taxing and spending spree,” Senate GOP leader Mitch McConnell said in a tweet.
The pandemic has accelerated inequality, with the top 1% now controlling more than 32% of U.S. wealth, the highest since at least the late 1980s according to Federal Reserve estimates. While their share is up 2.4 points since the start of 2020, the portion of wealth held by the middle class, the 50th to 99th percentiles, has dipped.
One bright spot is that pandemic relief has helped the poorest half of U.S. households boost their savings a bit. The bottom 50% of Americans now hold 2.5% of U.S. wealth, up 0.7 points since the start of 2020 and the highest share since 2004.
Massive Windfalls
Meanwhile, the very richest Americans have reaped massive windfalls. The net worths of Americans on the Bloomberg Billionaires Index, a daily ranking of the world’s 500 richest people, have surged 45% since the beginning of last year. The 169 U.S. billionaires on the list are now worth $3.5 trillion, more than the bottom half of Americans combined.
Against this backdrop, the wealthy were prepared for the worst from Biden and Democrats. But lawmakers were forced to drop proposals to almost double the top rate on capital gains, close loopholes like the carried interest rules benefiting private equity managers, and make it harder to pass large amounts of wealth to heirs tax-free.