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Biden's tax hikes include hidden costs on middle class, critics say

Biden's tax hikes include hidden costs on middle class,
critics say 1

President Biden’s proposed tax increases on corporations and the wealthiest Americans get most of the attention, but numerous other planned tax hikes would affect a broader range of taxpayers, analysts say.

The president’s budget would allow Trump-era tax cuts to expire, increase the top marginal tax rate for ordinary income from 37% to 39.6%, double taxes on investors’ capital gains and qualified dividends over $1 million, and require a “death tax” on certain inherited assets.

Beyond those proposals, the budget would repeal some tax credits for oil and gas companies totaling $17.8 billion over five years. Repealing those credits would “put upward pressure on fuel prices,” according to the National Taxpayers Union Foundation.

Prices at the pump already have climbed nearly 30% this year.

Inflation also is hitting Americans’ wallets, reaching a 13-year high. Republicans are arguing that Mr. Biden’s massive new spending proposals would only worsen inflation and cost jobs.

“Inflation is running twice as high as wage growth,” Rep. Kevin Brady, Texas Republican, said on the House floor this week. “In fact, for Americans, their pocketbook, their paycheck has actually declined in buying power since President Biden took office. A lot of Americans are fearful of the impact of rising prices and a slow-growth economy when the sugar high from all the COVID stimulus goes away, which is exactly what President Biden’s budget admits will do.”

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Mr. Brady, the senior Republican on the House Ways and Means Committee, has said repealing the 2017 tax cuts would cost 6 million U.S jobs over a decade.

“That means that a middle-class family of four making just $73,000 will have their family budget robbed by $20,000 over time,” Mr. Brady told Treasury Secretary Janet Yellen at a hearing this month.

While the wealthiest Americans would be most affected by the president’s bid to raise corporate taxes, his plan also would end up hitting about three-fourths of middle-class families as companies look to offset those costs, according to the left-leaning Tax Policy Center at the Urban Institute.

“That’s mostly because, as workers, they’d bear some of the burden of those corporate tax hikes through lower wages,” wrote senior fellow Howard Gleckman in a blog post. “About three-quarters of those households would see their after-tax incomes fall compared to current law.”

Mr. Biden has proposed raising the corporate tax rate to 28% from 21%. The 2017 tax law lowered the rate to 21% from 35%, one of the highest among developed countries.

In all, Mr. Biden is proposing more than $3 trillion in tax increases to pay for higher spending on paid leave, child care, healthcare, education, “green” energy and other initiatives.

When the president announced a tentative bipartisan deal with senators this week on $559 billion in new infrastructure spending, Mr. Biden highlighted that there would be no new taxes to pay for it. The overall proposal is nearly $1 trillion.

“There’s no gas tax increase, no fee on electric vehicles,” Mr. Biden said.

Conservatives counter that the bill will come due for all taxpayers.

“This framework isn’t about roads and bridges: It is about buying votes and clearing the path for Democrats to move their $3 trillion tax hike through reconciliation,” said Grover Norquist, president of Americans for Tax Reform.

He said House Speaker Nancy Pelosi and Senate Majority Leader Charles E. Schumer “have made it clear they will hold this framework hostage until they get their overspending wishlist.”

White House officials insist that Mr. Biden’s agenda wouldn’t increase taxes on the middle class. White House press secretary Jen Psaki on Friday still portrayed the administration’s plans as affecting only the wealthiest Americans.

“The president believes that raising the corporate rate back to where it was the first year of the George W. Bush administration [and] asking individuals in the top 1% of Americans to pay more to pay for these historic investments, to pay for an extension of the child tax credit, to make sure kids have access to universal pre-K, is something that we should do because it’s right the right policy,” Ms. Psaki said. “Also, it’s going to help move our country forward.”

But the administration is taking criticism from some Democrats, too. House Agriculture Committee Chairman David Scott of Georgia objected this month to Mr. Biden’s proposal to change the capital gains taxation on inherited property. He said it could cause significant tax increases for farmers and small businesses in rural America.

“Any increase in inheritance tax for those taking over farm land is untenable and will further strain a farm economy that is just now beginning to recover from the strain of the pandemic,” Mr. Scott told the president in a letter. “The potential for capital gains to be imposed on heirs at death of the landowner would impose a significant financial burden on these operations.”

Under Mr. Biden’s proposal, people who inherit assets of more than $1 million would be required to pay capital gains taxes on the full appreciation in value from the time the original owner purchased the assets. Currently, they pay taxes on the appreciation that occurs after they inherit the property.

The Treasury Department has projected that the proposed increase in capital gains taxes would raise $322.5 billion over a decade.

Mr. Brady said the administration-backed global minimum tax of 15% for international corporations, coupled with Mr. Biden’s desired 28% for businesses operating in the U.S., “will make America even less competitive and drive jobs, manufacturing, research, and investment overseas.”

The Group of Seven wealthiest democracies, including the U.S., agreed on the global minimum tax on international corporations at a summit this month. The goal is to prevent companies from shifting operations to lower-tax nations in what Ms. Yellen has called a “race to the bottom.”

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