White House message to top earners: tax increases are to be expected

President Biden has released a new tax proposal that would increase taxes for some of the richest Americans. The proposal comes as the administration begins to consider what funds will be needed for the next fiscal year to continue working on President Biden’s agenda which has stalled significantly. The war in Ukraine has derailed discussions on domestic policy and inflation caused by corporate profiteering and continued supply chain disruptions from the pandemic and the Russian invasion are having severe impacts at the household level.

Should the Build Back Better Act be able to become law, the budget put forth by the White House “would give the U.S. the highest top tax rates on individual and corporate income in the developed world.” This is according to the Tax Foundation which also reported that the budget would increase the corporate tax rate from twenty-one to twenty-eight percent, “which the administration estimates would raise $1.3 trillion over 10 years.” When the budget was released, the White House released a fact sheet that said that changes were necessary to ensure that “wealthy people pay the taxes they already owe and close loopholes they exploit.”

Will the tax rate increase for low and middle-income households?

On the campaign trail, then-candidate Biden made a promise to not increase taxes on any households making less than $400,000 a year. This proposal would make good on this promise.

While some economists worry that the tax increases could harm the economy, this is not a uniform opinion. The changes to the law would create penalities for companies that ship jobs overseas or try and keep their profits tax havens.

“For decades, American workers and taxpayers have paid the price for a tax system that has rewarded multinational corporations for shipping jobs and profits overseas,” read a statement from the White House.

Last year seven hundred billionaires saw their wealth increase by more than a trillion dollars, paying around eight percent of their income in taxes. This rate is significantly lower than that paid by the majority of Americans who have experienced serious financial stress, not a success, as a result of the covid-19 pandemic.

Balancing the budget

Some economists are correct in noting that deficit-spending to encourage job growth and high wages for workers may not be a long-term solution to the economic problems faced in the US. Part of the solution, however, could be higher taxes, which would allow for greater budgets to build a stronger social safety net in the future.

The People’s Policy Project released a report that stated other options to support increasing wages and power for workers is to support unionization. In many cases the project notes that increased stimulus spending tends to lead to “more employment, higher wages, and better working conditions, especially for workers on the fringes.” While, this is not wrong and the PPP also writes that the “idea that we are always in an environment where deficit-financed spending will be absorbed by more production and not by higher prices is clearly wrong.”

What policy makers must be aware of and focus on is moving away from this appraoch to more sustainable means of building a strong workforce.