February 7, 2023
February 7, 2023
In tonight’s State of the Union address, President Joe Biden is expected to announce tax changes that would require wealthy people and corporations to pay more of their fair share, help families with children more easily make ends meet, and bring more revenue into the public sector to pay for the essentials that government provides.
In 2022, after decades in which lawmakers had rarely raised taxes on rich people and corporations and had instead often created new inequality-increasing tax breaks, many expected little from an evenly divided Senate. But to widespread surprise, lawmakers passed and the President signed the Inflation Reduction Act, which included a new corporate minimum tax, a very small tax on stock buybacks which had previously gone untaxed, and new funding to equip the Internal Revenue Service to enforce the law on wealthy and corporate tax cheats. Together, starting this year, these provisions should raise hundreds of billions of dollars for health care, climate change prevention, and debt reduction.
It is only appropriate that the President build on that progress. He is expected to begin to do so tonight.
According to advance documents from the White House, the President will call for a Billionaire Minimum Tax that phases in for those with wealth exceeding $100 million, requiring them to pay at least a 20 percent tax rate on all of their income, including unrealized capital gains. Currently, the very wealthy can accumulate capital gains on their assets without selling them, even as they live luxuriously by borrowing against that wealth. If they never sell, they never pay any taxes on their gains and can pass the wealth onto their heirs, who inherit the asset at the new, appreciated value and also don’t pay taxes on the gains. In this way, dynastic wealth balloons and is bequeathed from generation to generation without anyone ever being taxed. Lawmakers rejected other approaches for taxing capital gains before they are inherited, removing them from President Biden’s proposed economic plan before it passed the U.S. House in November 2021. The Billionaire Minimum Income Tax, which will apply to a narrower and much wealthier group, would raise over $350 billion from only the absurdly wealthy, in a country that is being torn apart by extreme inequality.
The U.S. tax code offers a huge tax advantage for stock buybacks, which enriches corporate executives and wealthy investors while depriving the American public of revenue by skirting the tax on dividends (which is 20 percent for the wealthiest investors). Last year’s legislation added a 1 percent tax on stock buybacks, which forecasters conservatively estimated will raise about $75 billion over the next ten years. The President is expected to propose increasing that to a still modest 4 percent rate. We have seen this year that the new 1 percent tax has not changed corporate behavior, with buybacks at record levels. Increasing the rate to 4 percent will either encourage businesses to reduce use of stock buybacks and instead invest profits back in the business or it will increase the revenue the public gets for this activity.
Finally, the President is expected to propose an expanded Child Tax Credit. This would help every child in a family with earnings under $400,000, dramatically slash child poverty, reduce racial inequity, and help children of all races.
The White House fact sheet released in advance of tonight’s address cited ITEP’s findings that 55 of the nation’s largest, most profitable corporations paid zero taxes in 2020. Reforms last year will mean that corporations reporting $1 billion in profits will have to pay at least 15 percent of those profits in taxes.
The President’s expected proposals are not the only policy changes needed to ensure a fair tax code. In particular, it’s imperative that the U.S. pass the international corporate minimum tax unless we want other countries to receive revenue that we refuse to collect. Still, the reforms President Biden is proposing would build meaningfully on last year’s substantial progress. After decades of Presidents who ran away from taxes, it’s a sea change to have a chief executive who understands that the rich should pay their fair share, extremely profitable corporations should pay their fair share, and the public sector should have revenue to invest in problems – like climate change and healthcare – that will only be solved with pathbreaking public action.
Together the tax changes the President plans to put forth would raise hundreds of billions of dollars, help all families with children, and make this a more racially and economically equitable country.