Biden's Plan to Tax the Rich Faces Roadblocks
The president-elect is unlikely to get much on his wish list, with the Democratic majority in the House narrowed and the GOP likely keeping control of the Senate.
President-Elect Joe Biden has big plans for tax changes. He campaigned on tax increases for corporations and individuals making over $400,000, estate tax hikes, and tax cuts for lower- and moderate-income people. But he's unlikely to get much on his wish list, with the Democratic majority in the House narrowed and Republicans likely keeping control of the Senate. This means no tax hikes on the rich.
Some say the legislative path will be easier for Biden if both Georgia Senate runoff races in early January result in Democratic victories. But even if that occurs, Biden is expected to wait to propose tax increases. Priority number one is COVID-19. Plus, raising taxes before the economy fully recovers is risky. It would also be hard to get higher taxes approved in a deeply divided Senate.
There is one exception, though. You might see some targeted tax hikes in an infrastructure bill to help defray the cost.
Some Tax Changes are Possible
The chances of tax cuts for lower- and middle-income Americans are somewhat better, especially if the economy's recovery continues to leave these people behind. Biden wants to expand the child and dependent care credit and refundable child credit, both of which have bipartisan support. He also hopes to create a new tax credit for people who provide long-term care to their elderly relatives and to give a new tax break to first-time homebuyers and renters.
Among items that have a decent shot of passage early in the Biden administration:
- More stimulus, provided this doesn't pass during the lame-duck session;
- Expanding the employee retention tax credit;
- Reviving Paycheck Protection Program loans;
- Tax breaks for businesses to help cover the cost of making their premises safe for workers and employees;
- Tax incentives for IRA owners and 401(k) participants, along with proposals to encourage more employers to offer workplace retirement plans;
- Temporary tax extenders that expire at the end of 2020; and
- Tax breaks to encourage businesses to produce critical products in the U.S.
Tax Cuts and Jobs Act Provisions
Republicans will put pressure on Biden to make the 2017 tax reform law permanent. Most provisions affecting individuals expire after 2025, including the income tax rates, higher standard deductions and child credits, cutback in itemized deductions, 20% write-off for pass-through income, and higher estate tax exemptions. But some key business tax provisions will start to expire during Biden's term in office, such as first-year 100% bonus depreciation, which begins to phase out after 2022.
Biden will be in no hurry to act here. In fact, he wants to reverse the cuts that favor individuals making over $400,000. However, he might be more open to exploring expiring business tax changes, especially if he can get something in return.
What About Health Care Taxes?
Health care is vital to Biden. Shoring up Obamacare, adding a public option similar to Medicare, and increasing the health premium tax credit for individuals who buy health insurance through a government exchange are all on his list of to-dos. But expanding Obamacare would not get the needed Republican support.