 | | Jeff Bezos on a mobile billboard near the Capitol in Washington last month.Drew Angerer/Getty Images |
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Raising taxes on the wealthiest Americans was already a widely popular idea before ProPublica published a report yesterday that threw back the curtain on just how easily the richest Americans have been avoiding taxation. |
But popularity isn't everything: On Capitol Hill, tax protections for wealthy Americans have been among the hardest things to attack, thanks to the ever-growing influence of big money in politics. |
Billionaires like Jeff Bezos and Michael Bloomberg have effectively been paying taxes at a rate of about 1 percent of their wealth gains, the ProPublica report found, largely because the tax system treats investments and wealth differently than it does earned income. |
President Biden has said he'd like to revamp parts of this system, and the White House has already proposed a number of reforms that would patch some of the loopholes and carve-outs that allow the wealthiest Americans to pay so little in taxes. |
"It's time for corporate America and the wealthiest 1 percent of Americans to just begin to pay their fair share — just their fair share," Biden said in April during his first address to a joint session of Congress, outlining his proposals to raise taxes on corporations and high-level investors. |
The president and many liberal Democrats spy an opportunity. About three in five Americans have expressed support for higher taxes on corporations and the wealthy to pay for infrastructure projects and climate action, according to a range of recent polls. That includes a solid majority of independents. |
Which helps explain why raising taxes on the rich was such a prominent issue on the campaign trail, particularly during the Democratic primary, when progressives like Senators Elizabeth Warren and Bernie Sanders pushed for an extensive tax overhaul. As president, Biden has embraced many of their goals. |
Still, like so many items on his agenda, those proposals are staunchly opposed by most Republican lawmakers. So it doesn't help Biden that the most conservative Democratic senator, Joe Manchin of West Virginia, is dead set on finding bipartisan compromise. Or that Manchin himself is a fairly reliable ally of big business, and has already expressed opposition to some of Biden's tax ideas. |
Robert Reich, a professor of public policy at the University of California, Berkeley, and former secretary of labor under President Bill Clinton, noted that Democrats as well as Republicans are heavily funded by corporate interests. |
"With great wealth comes political power, and the intricacies of the tax code are the place where that power is wielded most efficiently," Reich said in an interview. |
"This is the vicious cycle we've gotten ourselves into over the last 25, 30 years, particularly," added Reich, whose most recent book is "The System: Who Rigged It, How We Fix It." "You've got platoons of accountants and tax lawyers who are not only working for wealthy individuals, finding ways to avoid paying taxes, but you also have entire armies of lobbyists working directly and indirectly for the wealthy, making sure that the loopholes stay in place." |
Reich said that the For the People Act, the voting rights bill that has become a major goal of Democrats, would attack this system by imposing new limits on private campaign spending. But that bill now appears destined to die in the Senate, after Manchin came out against it on Sunday. |
The Biden administration is pursuing a few major avenues to extract taxes from the wealthiest Americans. Its American Jobs Plan, a $2 trillion proposal to address infrastructure and climate change, includes a measure to raise the corporate tax rate to 28 percent. |
In a recent ABC News/Washington Post poll, 58 percent of Americans supported that increase to the corporate tax rate — making it more popular than the infrastructure plan overall, which was supported by 52 percent of respondents. |
The corporate tax rate had been 35 percent until President Donald Trump's tax cuts of 2017 slashed it to 21 percent. But Manchin — whose voting record is to the right of even some Republicans' — has said he favors a more modest bump, to 25 percent. |
Republicans, of course, have said that any changes to Trump's rewriting of the tax code would be unacceptable to them. Manchin and Senator Kyrsten Sinema of Arizona, a fellow Democrat, have joined six Republican senators in seeking a compromise deal on infrastructure, though it's anyone's guess whether they will be able to reach a deal that satisfies the White House. |
Democrats could pass the American Jobs Plan without Republican support, through the process of budgetary reconciliation, but Manchin has said he's against doing that. |
Capital gains and inheritances |
The Biden administration's other big plan to reap more from the wealthy involves taxes on capital gains and inheritances. This comes as part of its American Families Plan, which is focused on funding what the president calls "human infrastructure." |
His proposal would raise the effective tax rate on capital gains — that is, money from stocks, bonds and property sales — to 43 percent, up from its current level of 20 percent. This increase wouldn't affect investment inheritances, such as 401(k)s, and would apply only to those earning upward of $1 million a year in capital gains. |
Separately, Biden has proposed ending what's called the "stepped-up basis" for taxing wealthy people's inheritances. Currently, those who inherit assets from a deceased family member can immediately sell off those assets (property, stocks, what have you) without paying any tax. Biden's proposal would force those who inherit assets greater than $1 million to pay tax on however much the assets increased in value while their relative owned them. |
But Republicans strongly oppose cutting into wealthy people's inheritances, calling it a "death tax." |
Lawmakers are unlikely to take up the American Families Plan until after they have dealt with the jobs proposal currently being negotiated in the Senate. |
How the system works (and doesn't) |
The U.S. system generally taxes only "realized gains" — that is, wages or profits made from sales. If the worth of your assets grows, you generally won't get taxed on it until you sell off that asset. In an economy where most rich people's wealth exists in the form of investments, a portfolio can grow exponentially without being taxed much at all. |
And thanks to the stepped-up basis for inheritance tax, your heir can sell off those assets after you die without being taxed, either. |
A pair of economists at the University of California, Berkeley, have estimated that the assets of American billionaires alone have made gains of roughly $2.7 trillion that was never taxed. |
And in practice, rich people often use their untaxable assets as collateral to take out loans, which allows them to spend lavishly using their potential money, rather than anything they've actually earned. |
This, Reich said, has contributed to a situation in which frustration with inequality "is the strongest force in American politics today." |
He added, "To keep it focused in a constructive direction is difficult." |
He pointed to the example of Trump, who drew upon frustration with elites in his winning 2016 presidential campaign, but who governed as an ally of the wealthy. |
For Biden, he said, the challenge would be to deliver results that showed voters he was not only helping to dismantle the protections that have privileged millionaires and billionaires — but also using that money to strengthen the social safety net. |
"Instead of making the wealthy public enemy No. 1, the real goal is to try to focus the public's attention on the importance of a fair tax system that is going to generate enough revenue that the country needs," Reich said. "And that's the trick. That's the biggest balancing act." |
Biden revokes and replaces Trump's executive order that sought to ban TikTok. |
By Katie Rogers and Cecilia Kang |
President Biden today revoked a Trump-era executive order that sought to ban the popular apps TikTok and WeChat and replaced it with one that calls for a broader review of a number of foreign-controlled applications that could pose a security risk to Americans and their data. |
The Trump-era order had not been carried out "in the soundest fashion," administration officials said in a call with reporters on Wednesday, adding that the new directive would establish "clear intelligible criteria" to evaluate national security risks posed by software applications connected to foreign governments, particularly China. |
Biden's directive is yet another designed to reassess executive orders made by Donald Trump to curb the growing influence of the Chinese military and Beijing's technology sector. It is also the first significant step Biden has taken to approach an ongoing saga between TikTok and the Trump administration, which tried to ban the app over concerns it posed to national security, and was immediately challenged in federal court. |
Analysts said the new executive order was meant to create a process that could withstand such a challenge. |
"It's a bit of a troll to the Trump administration approach," said Brian Fleming, a lawyer who focuses on national security and international trade matters, "which was exposed in court as being a bit of a hollow process that was completely outcome driven." |
This piece comes from our live briefing, where you can find more updates on the news in Washington today. |
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