“Sometimes I have arguments with my friends in the Democratic Party,” Biden said. “I think you should be able to become a billionaire or a millionaire. But pay your fair share.”
Under his “American Families Plan” announced Wednesday, the top rate of personal income tax would increase to 39.6% for the highest 1% of earners from the current 37%, while the capital gains rate would be raised to the same level for those earning above $1 million, wiping out the discrepancy between income and capital gains tax rates that has benefitted many of the ultra-rich.
The wealthiest 1% currently pay 40% of all federal income taxes, according to Internal Revenue Service data, an amount that doesn’t include payroll taxes.
“When you ask the American people what they want, they want corporations and millionaires and billionaires to pay higher taxes,” said Erica Payne, founder of the Patriotic Millionaires, a group of progressive high-net-worth individuals. “It is politically a winner, it is economically the right thing to do and it is morally a no-brainer.”
The White House has also proposed a plan to hike corporate taxes to fund infrastructure spending. In a surprise this month, Bezos issued a statement saying he supports the general idea. “We look forward to Congress and the administration coming together to find the right, balanced solution that maintains or enhances U.S. competitiveness,” he said.
Conservatives say boosting spending by adding a greater burden on the wealthy can backfire.
“Government investments are often sold to the public with the promise that they will improve lives and improve the economy,” Scott Hodge, president of the Tax Foundation, argued in testimony before Congress this week. “In every case, the economic harm caused by the taxes would swamp any of the benefits from the new spending, leaving taxpayers and the economy worse off.”
Despite the pandemic, Fed data show all groups gained wealth last year. The top 1% did best, however, adding $4 trillion in 2020 and bringing their total net worth to almost $39 billion, more than the bottom 90% of Americans combined. Personal incomes in the U.S. jumped a record 21% in March, surging after households received a third round of relief checks.
In his speech to Congress, Biden emphasized his efforts to create good-paying jobs, especially those that don’t require a college degree. The increasing dominance of tech giants, however, won’t necessarily help middle-class Americans. As a proportion of their market capitalization, most technology companies employ relatively few Americans compared with their older listed peers, concentrating wealth in the hands of a select few.
“The whole retail distribution system is changing,” said Robert Miller, professor of economics and statistics at Carnegie Mellon University. “Recent technology has been hollowing out some parts of middle management, so you can see parts of the middle class slipping away.”
Democrats in Congress are pushing other plans to close loopholes and tax wealth. To claw back gains made by America’s richest during the pandemic, Senator Elizabeth Warren, a Massachusetts Democrat, proposed an Ultra Millionaire tax, a new version of the wealth tax she floated as a presidential candidate. Under her proposal, those with fortunes exceeding $50 million would face a 2% tax on their wealth, increasing to 3% for those worth more than $1 billion. The plan is unlikely to become law, given opposition from Biden and other Democrats.
Higher taxes aren’t “going to have very much effect in the long term on redistributing wealth,” Carnegie Mellon’s Miller said. “This focus on how we’re going to get the money is a bit misplaced—we should be thinking more about how we want to help the people that need help.”
—With assistance from Pratish Narayanan.
This article was provided by Bloomberg News.