by Gina Chon via Reuters Breakingviews
Joe Biden has lost an important battle against the so-called 1%. The U.S. president repeatedly pledged that the super-rich and corporations would pay their fair share in taxes under his leadership. They’ll almost certainly pay more – just not enough to live up to his original promise.
One of Biden’s pre-election rallying cries was to erase the different tax treatment of investment and regular income. That would remove an advantage private equity firms enjoy over “carried interest” – the profit from their investing activities – and help fund a $3.5 trillion spending bonanza on education, childcare and healthcare. Political reality, notably the slim Senate majority of Biden’s Democrats, has softened the president’s edges.
Under the latest proposal, the wealthiest 1% of Americans will see after-tax income fall 5% next year, according to the Tax Foundation, compared with more than 11% in Biden’s original plan. Where the president wanted to raise the 20% capital gains tax to 39.6%, his proposed ordinary income rate, the latest target is just 25%. That might make a stock-market selloff less likely, but it gives buyout barons a pass. They can still pay a lower rate on fund earnings.
There’s also less pain for corporations, whose income tax rate was cut from 35% to 21% under Donald Trump. Democrats in the U.S. House of Representatives now propose 26.5%, where Biden wanted 28%, though companies would also find it harder to shift profits abroad. The numbers may still change. Progressives effectively have the swing vote in the House; in the Senate, moderates do. Both chambers must approve the bill to make it law.
Biden can still win a wider war. His plan would improve living standards for lower-income individuals, with means-based childcare assistance, universal access to pre-school and more healthcare benefits for older Americans. In 32 states, a typical family would save more than $100 a week on childcare, according to the Center for American Progress. After-tax income for the lowest 20% of earners could go up by 14.5%, a Tax Foundation analysis showed.
Context matters too. The last Democratic president, Barack Obama, struggled to obtain $600 billion in levy increases. The currently mooted plan adds more than $2 trillion. Biden should improve on his colleague’s track record. That’s probably a win in itself.
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