Amid economic downturn, Biden sticks by proposed tax hikes on businesses and wealthy Americans

Biden has faced fierce criticism from President Donald Trump and conservative economists over his proposals to raise trillions in new taxes on investors, businesses and wealthy Americans. Larry Kudlow, the president's chief economist, has repeatedly asserted that even Democratic economists are often wary of raising taxes in a recession. "A self-respecting Keynesian would say: 'Spend more, and tax less,'" Kudlow said in August.

Biden is not likely to pursue tax hikes as part of short-term stimulus programs designed to help the nation's economic recovery, according to two people familiar with the campaign's thinking. However, the former vice president would likely aim to include his tax increases if Congress approves his proposed permanent spending plans, such as expansions in child care, health care or education, these people said. The people, who spoke on the condition of anonymity to share internal deliberations, stressed that planning was fluid and subject to changes based on economic conditions, as well as the makeup of Congress should Biden win. A Biden campaign aide confirmed that his commitment to paying for spending priorities did not include short-term stimulus measures.

Asked during an ABC town hall last week about whether it was appropriate to raise taxes despite the struggling economy, Biden said: "Absolutely."

Biden has proposed increasing the corporate tax rate from 21% to 28%; taxing investors' capital gains at normal income rates for those earning more than $1 million; raising the top rate from 37% to 39.6%; and lifting the cap on Social Security payroll taxes, among other changes his campaign says are designed to insulate Americans earning less than $400,000 a year from new tax hikes.

The proposals mark a stark contrast with Trump, who slashed federal taxes by more than $2 trillion in 2017 and is vowing a second round of tax cuts if elected. The president has overseen a massive increase in debt, with the federal government recording a record-high $3.1 trillion deficit in fiscal 2020 because of the government's extraordinary response to the coronavirus pandemic. Biden's proposals, however, do not go nearly as far as the approximately $30 trillion in taxes pushed by Sen. Bernie Sanders, I-Vt., and liberal Democrats to fund universal health care and other social programs.

Biden's allies maintain his tax plans are targeted at affluent Americans and businesses that have quickly rebounded from the coronavirus downturn, arguing they can absorb the impact of a bigger tax burden without hurting economic growth. The current recovery is the most uneven in U.S. history, with the fortunes of the top 25% largely recovering to precrisis levels despite ongoing economic devastation at the bottom of the distribution - a disparity Biden has taken pains to emphasize on the campaign trail.

"In previous recessions, the investor class got hit along with the working class. But if you're in the investor class, there's no recession at all right now," said Jim Kessler, executive vice president for policy at Third Way, a Democratic-leaning centrist think tank. "Raising taxes on very wealthy people will not have any negative effect on this particular recovery."

This spring, Biden's tax proposals were estimated to bring as much as $4 trillion into federal coffers, according to the Tax Policy Center, a nonpartisan think tank. Earlier this month, the Tax Policy Center significantly revised that estimate downward to $2.4 trillion, as Biden incorporated Democratic calls for expanding low-income tax credits and the think tank accounted for other changes due to the pandemic.

Several nonpartisan think tanks have found that Biden's tax cuts would be overwhelmingly paid by wealthier Americans. About 80 to 90% of the total proposed increases would fall on the richest 5%, according to the Committee for a Responsible Federal Budget, a nonpartisan think tank.

Conservatives have argued that Biden's tax plan would lead to lower investment and drive firms out of business, which would lead to lower wages because of a decrease in labor demand for poorer workers as well. Kevin Hassett and Casey Mulligan, who served as senior economists in the Trump White House, released a study last week that found Biden's agenda would cost America roughly 5 million jobs and about $2.6 trillion in gross domestic product. They also found it would cost the median family about $6,500 by 2030. The paper included Biden's tax policies as well as his health and climate plans. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, pointed Wednesday to a study by the nonpartisan Joint Committee on Taxation finding that as much as 25% of corporate tax increases fall on workers.

"Remember, BIDEN is going to raise your taxes at a level never seen before. This will not only be very costly for you, it will destroy our economy, which is coming back very rapidly," Trump tweeted Wednesday.

Budget experts and Wall Street analysts have disputed that line of attack. Biden's proposed corporate tax rate of 28% would still be far below the 35% it was before the 2017 GOP tax law. His proposed 39.6% tax rate on top earners would still be well below the top marginal rate from 1932 to 1986. Moody's Analytics estimated stronger GDP growth under Biden's economic plans than Trump's.

Also, the parts of the 2017 Trump tax cuts for households and many small businesses are scheduled to expire in a few years. If Biden is elected, that could give him an opportunity to make changes because Congress will likely look to act in some way ahead of the expiration. Biden has not said whether he would seek the extend the expiring tax cuts, though he could try to extend the cuts for middle-class households and let them lapse for upper-income earners.

Sen. Ron Wyden, D-Ore., who would become chairman of the Finance Committee if Democrats flip the Senate, said in an interview that his staff has begun sharing their ideas on tax and other economic policy matters. There is broad overlap between the Biden and Wyden tax proposals, and Wyden said cracking down on wealthy tax cheats would be a top priority of his in a Democratic-controlled Congress.

"If I have the opportunity as chairman of the Finance Committee, I'm going to be focused on immediate economic relief and building a recovery that works for workers and the middle class and that makes it clear for the wealthiest that the tax system isn't voluntary," Wyden said. "Joe Biden and I are very much on the same page on taxes - there cannot be one tax code for the firefighter, and one for the wealthy person with an accountant."

Although broadly popular among congressional Democrats, Biden may still face significant political obstacles in securing passage of his various tax hike proposals even if his party controls both the House and the Senate.

Biden's plan to raise the corporate tax rate flies against the last 60 years of U.S. history, throughout which that levy has fallen steadily, alongside a broader international trend of plummeting corporate taxes.

The vice president's plan to crack down on foreign tax evasion relies on a complicated design that some tax experts and firms warn will encourage corporations to move their headquarters abroad, said Kyle Pomerleau, a tax expert formerly at the conservative-leaning Tax Foundation and now at the American Enterprise Institute. Some congressional Democrats have voiced concerns over similar designs in the past.

Most of Biden's tax plans can be approved with 51 votes in the Senate through a budget procedure known as reconciliation. But one of his plans that would raise the most revenue - lifting the cap on Social Security payroll taxes on high earners - could require 60 votes in the Senate because it involves federal entitlement programs, creating a steep hurdle to passage of that provision.

"Biden has taken strong positions on raising taxes on corporations and the wealthy. If he wins, he will have a mandate," said Frank Clemente, executive director of Americans for Tax Fairness, a left-leaning tax group. "Moderate Democrats on the Hill will need to follow his lead and not cower from corporate lobbyists."