The array of tax hikes aimed at the richest taxpayers in President Joe Biden’s budget proposal reflects his long-held view that the wealthiest households need to pay more taxes.
The Biden budget proposal is an opening bid in the annual process of how to fund the government, and where to spend money. With the House of Representatives under Republican control, Biden’s proposals to tax the rich are unlikely to become law anytime soon.
But Thursday’s budget proposal is also an early salvo in the 2024 presidential campaign that likely previews how Biden, as the incumbent candidate, would like to increase the tax burden on wealthy households.
With some notable exceptions, “these are all kind of golden oldies,” said Howard Gleckman, senior fellow at the Tax Policy Center. The range of proposals is “not so different from candidate Biden in 2020.”
Here’s a look at what’s old and what’s new:
The Biden budget proposal would restore the top marginal rate to 39.6% from its current 37% level. The top rate would apply to single filers making at least $400,000 a year, and $450,000 for married couples filing jointly.
The proposal would also put the capital gains tax rate at 39.6% for households making at least $1 million. This would nearly double the 20% rate that’s now in effect. It would also tax wealth and labor on an equal playing field, the administration says.
Both ideas were a part of the 2020 Biden campaign but didn’t get through Congress — even when Democrats had control of both chambers.
Expiring Trump tax cuts from 2017 are going to force the debate about the top rate. Absent Congressional action, the top rate in 2026 would revert to 39.6% and four other income tax rates would revert to higher levels.
Taxing households worth at least $100 million
The inability to enact higher income-tax rates was the genesis of the White House’s billionaire minimum tax proposed earlier by the Biden administration, Gleckman noted. Now it’s back again.
In this iteration, the tax sets a 25% minimum tax on households worth at least $100 million.
Biden did not, however, back a wealth tax like onetime 2020 rivals Sen. Bernie Sanders of Vermont and Sen. Elizabeth Warren of Massachusetts.
Technically speaking, the proposed minimum tax would be styled as an income tax and not as a wealth tax, Gleckman said. The minimum tax is based on income, which also includes unrealized capital gains, according to Treasury Department materials released Thursday. But the proposal’s efforts to tax unsold or “unrealized” assets has previously prompted questions about how to make the tax work.
Proposal to raise the net investment income tax
The proposed tax hikes to fund Medicare are one example of the new approaches, Gleckman said.
This includes a proposal to raise the net investment income tax (NIIT) to 5% from 3.8% on incomes of $400,000 a year and above. The NIIT takes in revenue from sources that including interest, dividends, annuities, royalties and certain types of business income.
The tax has been in effect since 2013, applying to single filers making over $200,000 and married couples making more than $250,000. The law would close exceptions that can let certain forms of profits get past the tax.
The unveiled budget “is the most ambitious tax plan we’ve seen from a President in decades,” said Erica Payne, founder and president of the Patriotic Millionaires, an organization of high-net worth individuals pushing for higher taxes on rich households.
Efforts to invest in the country, fight “corporate profiteering,” reduce the deficit and protect the social safety net are being accomplished “simply by raising taxes on corporations and millionaires,” she said in a statement.
The budget’s tax hikes prompted Republican criticism too. “President Biden’s FY2024 budget proposal is a roadmap to fiscal ruin,” Sen. Chuck Grassley of Iowa said in a statement.
“From its delayed rollout to its reckless taxes and out-of-control spending, this budget sends a clear message: President Biden doesn’t seem to give a rip about keeping his promises or securing the fiscal health of our nation,” Grassley said.
