WASHINGTON — President Biden is leaning into his push to increase taxes on the rich as he seeks to unify Democrats in the House and Senate behind a $3.5 trillion bill that would expand federal efforts to fight climate change, reduce the cost of child care, expand educational access, reduce poverty and more.
“I’m sick and tired of the super-wealthy and giant corporations not paying their fair share in taxes,” Mr. Biden wrote on Twitter on Wednesday, amplifying an argument that Democratic strategists believe will help sell his economic agenda to the public and potentially lift the party’s candidates in midterm elections. “It’s time for it to change.”
To buttress that argument, White House economists published on Thursday a new analysis that seeks to show a gap between the tax rate that everyday Americans face and what the richest owe on their vast holdings.
The analysis suggests that the wealthiest 400 households in America — those with net worth ranging between $2.1 billion and $160 billion — pay an effective federal income tax rate of just over 8 percent per year on average. The White House is basing that tax rate on calculations using data on high earners’ income, wealth and taxes paid from the Internal Revenue Service and the Federal Reserve’s Survey of Consumer Finances.
The analysis, from researchers at the Office of Management and Budget and the Council of Economic Advisers, is an attempt to bolster Mr. Biden’s claims that billionaires are not paying what they actually should owe in federal taxes, and that the tax code rewards wealth, not work.
Understand the Infrastructure Bill
- One trillion dollar package passed.The Senate passed a sweeping bipartisan infrastructure package on Aug. 10, capping weeks of intense negotiations and debate over the largest federal investment in the nation’s aging public works system in more than a decade.
- The final vote. The Senate voted 69-to-30. The legislation, which still must pass the House, would touch nearly every facet of the American economy and fortify the nation’s response to the warming of the planet.
- The main areas of spending.Overall, the bipartisan plan will focus spending on transportation, utilities, as well as pollution cleanup.
- Transportation. Transportation. $110 billion would go towards roads, bridges, other transportation projects. $25 billion goes to airports. $66 million for railways. Amtrak has received the most funding since 1971, when it was founded.
- Utilities. Senators have also included $65 billion meant to connect hard-to-reach rural communities to high-speed internet and help sign up low-income city dwellers who cannot afford it, and $8 billion for Western water infrastructure.
- Pollution cleanup: Roughly $21 billion would go to cleaning up abandoned wells and mines, and Superfund sites.
“While we have long known that billionaires don’t pay enough in taxes, the lack of transparency in our tax system means that much less is known about the income tax rate that they do pay,” The budget office posted the analysis in a blog posting that administration officials included.
The White House’s calculation of what the wealthiest pay in taxes is well below what other analyses have found. The difference comes from the White House officials’ decision to count the rising value of wealthy Americans’ stock portfolios — which is not taxed on an annual basis — as income. The report found that top 400 households earned an average of $1.8 trillion between 2010-2018, after taking into account the rise in wealth. It also estimates that they paid $149 million in federal income taxes.
The White House method of counting assets gains as an annual income is not used in most tax rate measures.
The independent Tax Policy Center in Washington estimated this year that in 2015, the highest-earning 1,400 households in the country paid an average effective tax rate of about 24 percent, compared with an average rate of about 14 percent for all taxpayers.
The White House economists — Greg Leiserson, senior economist at the Council of Economic Advisers, and Danny Yagan, the chief economist at the budget office — wrote that their calculation of low tax rates for the very wealthy flows from two types of preferential treatment for certain income in the tax code. The federal government taxes income derived from wages at a higher tax rate than income derived from investments. Wealthy households also report a greater share of their income as capital gains or dividends than most taxpayers.
Biden’s 2022 Budget
The 2022 fiscal year for the federal government begins on October 1, and President Biden has revealed what he’d like to spend, starting then. Any spending must be approved by both chambers. Here’s what the plan includes:
- Ambitious total spending:President Biden would like the federal government to spend $6 trillion in the 2022 fiscal year, and for total spending to rise to $8.2 trillion by 2031. This would allow the United States reach its highest level of sustained federal spending since World War II and result in a deficit of more than $1.3 trillion over the next ten years.
- Infrastructure plan:The budget outlines the president’s desired first year of investment in his American Jobs Plan, which seeks to fund improvements to roads, bridges, public transit and more with a total of $2.3 trillion over eight years.
- Families plan:The budget also addresses the other major spending proposal Biden has already rolled out, his American Families Plan, aimed at bolstering the United States’ social safety net by expanding access to education, reducing the cost of child care and supporting women in the work force.
- Mandatory programs:As usual, mandatory spending on programs like Social Security, Medicaid and Medicare make up a significant portion of the proposed budget. They are growing as America’s population ages.
- Discretionary spending:Funding for the individual budgets of the agencies and programs under the executive branch would reach around $1.5 trillion in 2022, a 16 percent increase from the previous budget.
- How Biden would pay for it: The president would largely fund his agenda by raising taxes on corporations and high earners, which would begin to shrink budget deficits in the 2030s. Officials from the administration claim that tax increases would completely offset the plans for families and jobs over the next 15 years. The budget request supports this assertion. The budget deficit will remain at $1.3 trillion per year.
Mr. Leiserson and Mr. Yagan noted that “the wealthy can choose when their capital gains income appears on their income tax returns and even prevent it from ever appearing.”
“If a wealthy investor never sells stock that has increased in value, those investment gains are wiped out for income tax purposes when those assets are passed on to their heirs under a provision known as stepped-up basis,” they wrote.
Mr. Biden proposes changing these tax treatment. He would raise capital gains to match wage income. He would also eliminate the provision that wealthy heirs are entitled to a stepped-up basis.
Both of these efforts have been resisted by Democrats in Congress. The House Ways and Means Committee approved this month a tax plan for the spending bill. It left intact the stepped up basis provision and increased the capital gains rate much less than Mr. Biden had proposed.
Administration officials did not provide, in their analysis or accompanying blog post, any estimate of how much more the wealthy would pay in taxes if Mr. Biden’s full tax plan was implemented.