The voices of Tax Policy Center's researchers and staff
The conventional wisdom is that President-elect Joe Biden’s ambitious tax agenda will die in the Senate, assuming the chamber remains under GOP control following two January 5 run-off elections in Georgia. But don’t be surprised if Congress approves at least some of Biden’s tax plan, even if the GOP (barely) controls the Senate.
Biden certainly won’t get all of his proposed $2.1 trillion tax increase over the next 10 years. But Congress could pass a revenue-neutral bill that pairs a tax cut aimed at low- and moderate-income households with modest tax increases on corporations and high-income individuals. Long shot? Perhaps. Impossible? No.
Biden’s plan really combines two very different initiatives. It would cut taxes for low- and moderate-income households by about $1 trillion, mostly by creating or expanding tax credits, and it would raise taxes on corporations and high-income households by roughly $3.1 trillion.
Dig into Biden’s plan a bit more deeply and you’ll find several proposals that enjoy bipartisan support and could find their way into a tax bill in 2021 or more likely 2022. Some areas where compromise is possible:
Expanding tax credits for families with children. Biden has proposed two initiatives—a temporary bump in the child tax credit (CTC) and an expansion of the child and dependent care tax credit (CDCTC). Before joining Biden’s ticket, Vice-president-elect Kamala Harris proposed a plan to supplement the earned income tax credit (EITC) and expand subsidies for middle-income families and low-income “childless” workers.
And the idea of expanding the CTC has GOP support as well. Senate Republicans including Marco Rubio (R-FL) and Mike Lee (R-UT) back the idea. And some Republicans may want to embrace tax cuts for middle-income working households. Packaged carefully, some proposals to expand refundable credits for those families could win Senate support.
Retirement savings tax incentives. Biden proposed several changes, including a plan to replace the current deduction for retirement savings with a refundable tax credit. At the same time, there are two bipartisan retirement savings bills with broad support in Congress.
House Ways and Means Committee Chairman Richard Neal (D-MA) and Ranking Republican Kevin Brady (R-TX) proposed The Securing a Strong Retirement Act of 2020 (sometimes called SECURE 2.0). In the Senate, Rob Portman (R-OH) and Ben Cardin (D-MD) have cosponsored a similar bill, the Retirement Security and Savings Act.
These initiatives primarily expand retirement savings for higher-income workers, while Biden’s plan targets those with low incomes. Still, it would not be hard to imagine a compromise that combines Biden’s refundable credit with some version of the Hill measures. One alternative: making the refundable credit optional, a step that could be costly and complicated but appealing to lawmakers.
Made in America tax subsidies. In the campaign, both Biden and Trump backed new tax subsidies to encourage firms to produce domestically. And the idea has strong bipartisan support in Congress.
Biden would combine this new tax break with several corporate tax increases, including new taxes on US firms with overseas income. His proposed new minimum taxes on foreign income may run into Senate objections, but his tax credit, or something like it, could pass.
Tax extenders. The usual list of special interest expiring tax breaks includes three broadly popular provisions—excise tax breaks for beer, wine, and liquor that were included in the 2017 Tax Cuts and Jobs Act and are due to expire this year; an employer tax credit for offering family and medical leave, also expiring this year; and generous tax breaks for business capital investment, which will begin to phase out over the next few years.
That leaves the question of how to pay for all these goodies.
Biden’s biggest revenue-raisers are an increase in the corporate tax rate from 21 percent to 28 percent and a provision to impose the Social Security payroll tax on wages above $400,000. Are those two in play? Probably not, especially if the economy remains weak.
But public opinion surveys show strong support for raising taxes on the rich, even among Republicans. Combining modest tax cuts for low- and middle-income households with tax increases on high-income households or, say, corporations with lots of foreign income, may be hard for even some Senate Republicans to resist. Especially if the Hill GOP beats the drum for deficit reduction with a Democrat in the White House.
To be sure, some of Biden’s ideas face tougher odds in a GOP Senate. Raising tax rates on long-term capital gains and dividends, taxing unrealized gains at death, increasing the estate tax, or raising the top individual income tax rate feel like non-starters.
But others still may have life. Don’t let the purveyors of conventional wisdom convince you otherwise, at least not yet. After all, those are the same folks who insisted Maine’s GOP senator Susan Collins couldn’t possibly get re-elected.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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