During his campaign, President-elect Joe Biden talked about raising taxes on rich people more than any candidate in recent memory—and he won. Beating an incumbent president is rare, but Biden pulled it off and appears to be the first presidential incumbent-challenger to capture 51 percent or more of the vote since Franklin Roosevelt’s victory in 1932.
As difficult as his race was, his call for higher taxes on the rich and corporations probably helped him. For years, survey respondents have told Gallup that the wealthy and corporations should pay more taxes. Surveys conducted over the past three years show that the public opposes the GOP tax cuts of 2017, the only significant legislative achievement of the Trump administration.
The presidency and every seat in the House of Representatives were on ballots in 2020, and most voters chose Democrats. Control of the Senate will depend on the outcome of the two special elections in Georgia (a state Biden narrowly won) but the chamber will be closely divided regardless.
This puts Republicans in Congress in a tight spot when it comes to tax policy because their views are out of sync with most voters. Obstructing President-elect Biden on tax policies that most Americans support could be perilous for them.
We do not know what Biden will focus on when he takes office, but his tax agenda potentially has three components: Tax legislation, tax regulations, and IRS appropriations.
The first potential part of this agenda, tax legislation, includes the proposals Biden discussed on the campaign trail, which are not particularly radical. He proposes to limit the Trump tax cuts for those with annual incomes exceeding $400,000. The Institute on Taxation and Economic Policy found that only 1.9 percent of Americans would see their income or payroll taxes rise under his plan. For those with incomes of more than $1 million, Biden’s plan would end existing rules that tax certain investment income (stock dividends and profits from selling assets) at lower rates than income from work. It would be difficult for Republicans to explain to the public why millionaires should pay lower tax rates on their investment income than working people pay on their earnings.
Biden also wants to reverse many of the 2017 law’s corporate tax cuts, but he would nonetheless set the corporate tax rate lower than it was before the 2017 law. In addition, his plan would reduce the tax breaks that companies currently receive when they generate profits offshore rather than here in the United States. This would also be a difficult proposal for Republicans to oppose.
The second potential part of this agenda is tax regulations, which the Biden administration can pursue without input from Congress. The Biden administration should start by reviewing regulations that Trump’s Treasury Department issued to implement the 2017 tax law. Legal scholars have concluded that these regulations provide larger tax breaks to wealthy individuals and corporations than the 2017 law allows. Congressional Republicans could be tempted to defend Trump’s tax regulations but doing so could backfire because those regulations expand unpopular tax cuts to benefit unpopular interests like banks and Wall Street investors.
For example, part of the 2017 law allowing a special deduction for business profits bars this benefit for “financial services” but the Trump administration decided that “financial services” do not include businesses that take deposits and make loans.
Another provision of the law applies a minimum tax to interest payments made from American companies to related foreign corporations, but the Trump administration invented an exception in the law for certain foreign banks. This exception adds about $50 billion to the cost of the 2017 law. The incoming administration should reverse this overreach by Trump’s Treasury Department and at least limit the 2017 tax breaks to what the law allows.
The third potential part of this tax agenda involves appropriations for the Internal Revenue Service. While lawmakers may disagree about what new tax laws to enact and what new tax regulations should be issued, they should agree to enforce the tax rules already on the books. This requires fully funding the agency that enforces those rules. This would not cost anything. In fact, each dollar spent to fund the IRS results in several more dollars collected in revenue. At a time when Republicans claim we have limited resources to help the unemployed, it would be difficult for them to explain why they are choosing not to collect taxes that are owed.
It is common for pundits to ask how a new president will reach across the aisle and work with members of both parties. But it is also common to assume that a new president will not dispense with proposals that were core to his or her campaign promises, particularly when the opposing party’s position on those proposals is wildly unpopular. As a candidate, Biden offered a strong case for raising taxes on wealthy individuals and corporations and voters liked what they heard. The question is, how will congressional Republicans adapt?
Steve Wamhoff is the director of federal policy at the Institute on Taxation and Economic Policy
The views expressed in this article are the author’s own.