Democrats among skeptics of Biden’s plan to tax the rich

In April 2011, Barack Obama invoked the support of Warren Buffett, the billionaire investor, in an attempt to persuade Congress to impose a minimum tax of 30% on Americans earning more than a million dollars a year. A Republican opposition wall and the skepticism of some moderate Democrats scuttled his efforts.

Ten years later, Joe Biden continues his own version of that mission with a plan for even more aggressive tax increases on the well-paid to help fund more than $ 1.5 billion in health and education spending. .

But tax lobbyists warn the U.S. Democratic president faces yet another surge, putting the plan at risk of watering down as lawmakers grapple with it in the months to come. Democrats in affluent neighborhoods, including suburbs of New York, New Jersey, California and Illinois, in addition to the predictable Republican opposition, will likely be a stumbling block.

“Democrats have become dependent and responsive to a relatively wealthy support base. So overbreadth could expose them to political attack and economic trouble, which can alienate those voters, ”said Mac Campbell, former Democratic Assistant to Congress and senior vice president of the Lincoln Policy Group, a lobbying firm. .

The Biden administration’s plan is expected to contain a near-doubling of the tax rate on capital gains and dividends for Americans earning more than $ 1 million a year, as well as an increase in the tax rate highest at 39.6%. The move would hurt wealthy investors, including hedge fund managers and private equity executives.

The White House is counting on a big recent shift in popular opinion to push for higher taxes on the very rich, after top incomes fared well in the aftermath of the financial crisis and during the coronavirus pandemic, as low income households have struggled.

But the White House has already had a taste of the resistance: Some Democratic lawmakers have pushed for Biden to drop a cap on federal deductions for local and state tax payments enacted by former President Donald Trump. The policy has increased costs for households in Democratic strongholds such as New York, New Jersey and California.

“Democrats in states with high taxes and the cost of living have focused on repealing the state and local tax deduction cap. The president’s team will need to approach or correct this policy affirmatively if they are to be successful in raising capital gains taxes for the wealthiest Americans, ”said Izzy Klein, Democratic strategist and co-founder of Klein / Johnson Group , a solidifying bipartisan lobby.

Biden certainly has a better chance of raising taxes for the very rich than Obama in 2011, when Republicans took control of the House of Representatives and blocked many of its economic policies.

But Biden can only count on the thinnest of Democratic majorities in both the House and the Senate.

“It’s going to be difficult to keep everyone on board,” said a Democratic tax lobbyist. “I think the administration is very aggressive, which is probably in their best interests, but I’m not sure Congress is ultimately that aggressive. You will probably see a modulation of what is finally done. “

Matt Bennett, the co-founder of Third Way, a centrist Democratic think tank, said he believes an “intra-Democrat compromise” is almost certain to happen.

“One thing Biden has done a great job of is demonstrating that we are not doing a very good job in this country with our public policy of rewarding work and equal opportunity between earned and unearned means of earning money. money. , “he said.” It’s a pretty compelling and largely resonant set of arguments. ”

However, prominent business groups were quick to question the capital gains tax proposal, which comes on top of Biden’s plan to raise corporate taxes to pay for a separate $ 2 billion infrastructure proposal. dollars. Suzanne Clark, chief executive of the US Chamber of Commerce, told CNBC she found the capital gains provision “frightening” and signaled that the influential business lobby would campaign against it.

“The idea that we would punish people for investing in the economy right now seems just outrageous. I don’t think this can pass Congress and we’re going to make sure that really, ”she said.

Line graph showing the highest tax rate since 1945, with presidential administrations labeled.  Biden proposed the biggest corporate tax hike since Truman, though the rate is lower than in decades

Asked about the White House’s argument that the tax increase would only affect the richest 0.3% of American households, Clark said it would have a broader impact on the economy. “The data that concerns us is what it does to investments in public enterprises [and] what it does to middle class pensions, ”she said.

A muted tone emerges from the Investment Company Institute. The professional association of fund groups said it would analyze the proposal as drafted, adding: “With tax policy, the devil is always in the details.”

Some investors have urged Washington to consider maintaining different tax treatment for capital gains based on how long the securities are held before they are sold.

Colin Moore, global director of investments at Columbia Threadneedle Investments, said he expected sales of stocks that had seen strong gains by high net worth investors to increase before the arrival of any tax hikes on the largest. -values ​​next year. Yet stock markets have continued to advance into record territory even as the odds of rising capital gains and corporate tax rates rise.

“There are certainly taxpayers who are considering a proposal to dramatically increase the capital gains tax rate and say, ‘If I had a gain that I was going to recognize soon, within six months or a year. come on, do i want to take a bath on it? Said Rohit Kumar, co-director of PwC’s national tax services group in Washington.

Line graph and stacked bar graph showing top tax rate (line graph) and realized and taxed capital gains paid on capital gains in billions (stacked bar graph)

As the debate begins on Capitol Hill, Democratic lawmakers are at the very least rallying around the idea of ​​improving funding for the Internal Revenue Service to better enforce the tax code, which they say could generate up to $ 700 billion in revenue over 10 years. Joe Manchin, the moderate Democratic senator from West Virginia, told CNN on Sunday that this option “should be explored before you start raising taxes exponentially.”

After Obama hit roadblocks in 2011, he managed to raise the highest rates of income tax and capital gains after his re-election in 2012. In 2021, hope grows on the flank left of the Democratic Party that Biden can follow through on his plans. , although he did not approve of their bolder proposal for a wealth tax.

“A fairer tax system is about making our country better and stronger,” said Elizabeth Warren, Democratic Senator from Massachusetts, on Tuesday. “It’s about allowing us to invest in our economy by asking the richest Americans and the biggest corporations to pay their fair share.”

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