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Taxes and Tribulations - Brief on Biden Tax Plans

Economic Policy Brief #123 | By: Tyler-Joseph Ballard | September 15th, 2021

Header photo taken from: Bright! Tax

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Policy Summary

A $3T USD budget shortfall in 2020 and the current deficit for 2021 of another $3T USD leaves the current administration in a considerable bind. The Biden administration’s proposed tax plans — The American Jobs Plan and the American Families Plan — impose considerable tax hikes for corporations and top earners while providing increased child and dependent tax credits.

The Biden tax plan would increase federal spending by an estimated $1.7T USD between 2022-2031 while generating about $1.7T in additional revenue to supplant the additional spending during that same time frame. After-tax income among the bottom two earning quintiles would see increases over the next decade under the Biden Families Plan. This plan aims to execute upon the common American progressive talking points of redistributing wealth to lower earners through taxation of the highest earners and corporations.

Some of the key changes in these proposed plans include the following:

  • An increased tax rate for top earners from 37% to 39.6%
  • An increase in statutory federal corporate tax rate from 21% to 28%
  • Extension of the enhanced Child Tax Credit through 2025
  • A tax hike on US corporations operating in foreign countries (GITLI) from 10.5% to 21%.

Projections from the Congressional Budget Office indicate an overall deficit of $12.1 USD through the next decade, with an annual average of a 4% deficit to GDP ratio. The Tax Foundation projects that even with the increase in revenue to offset increased federal spending, about 200,000 full time jobs will be lost as a result of the two tax plans, as the workforce is expected to hit a significant reduction in growth over the latter half of the Biden tax timeline.

Policy Analysis

The immediate benefits and long-term positive impacts of the Biden tax plans for the lowest quintiles of earners are a significant takeaway of the plan, but the ramifications for corporations and top earners have and will continue to be a point of contention which holds up the passage of the plans in Congress.

Presently, Democrats in the House of Representatives have introduced an economic plan which is in line with the wishes of the Biden Administration, but reduces proposed tax rate increases upon corporations. Though Democrats have the capacity to pass such legislation through Congress, moderate Democrats remain concerned about the extremely high price tags that come with the Biden plans. Proposed legislation fluctuates between $1T and $3.5T USD in additional federal spending, and it is unclear what kind of compromise will be made between House Democrats for these proposals.

Photo taken from: CNBC

In response to these proposals, a business coalition called “America’s Job Creators for a Strong Recovery” has aimed to lobby moderate House Democrats to ease up on proposed corporate tax hikes, arguing that it is not a solution to the current economic crisis. The spending bills in Congress find solutions to funding the additional spending. But, similarly to previous administrations, the Biden administration is unlikely to yield a solution which cuts into the deficit and overall federal debt. Spending to get out of economic turmoil has been a feature of the American presidency since Roosevelt’s New Deal.

Photo taken from: TBA

Engagement Resources​

Click or tap on image to visit resource website.

Key groups to follow to get reliable assessments of the Biden tax plan and Congressional action upon those plans are both the Tax Foundation (tax foundation.org

and the Congressional Budget Office (cbo.gov). As House Democrats mediate between the White House and lobbyists, expect party line voting, with successful passage of whatever the finalized bills will be.

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