President-elect Joe Biden said he would support returning the top income tax rate to the highs seen before former President George W. Bush slashed rates in 2001 and 2003.
“And by that fair share, I mean there’s no reason why the top tax rate shouldn’t be 39.6%, which it was in the beginning of the Bush administration,” Biden told the New York Times. “There’s no reason why 91 Fortune 500 companies should be paying zero in taxes.”
The highest marginal income tax rate was 39.6% for people earning $374,000 or more before Bush made cuts to the rates. Bush’s rates stayed in place until they expired in 2013, when Congress and former President Barack Obama chose to keep the top rate at 39.6%.
President Trump’s 2017 Tax Cuts and Jobs Act cut the top individual rate to 37% while slashing the corporate rate from 35% down to 21%.
Biden made undoing those cuts a cornerstone of his campaign, promising to restore the 39.6% rate for people earning at least $400,000 per year.
“I will raise taxes for anybody making over $400,000,” Biden promised during his campaign. “Let me tell you why I’m going to do it. It’s about time they start paying a fair share of the economic responsibility we have. The very wealthy should pay a fair share. Corporations should pay a fair share.”
But some analysts say Biden’s tax proposals would hit the middle class, even if Biden doesn’t target those earners in the language of the tax hike.
“When Biden says he will raise taxes on only those earning over $400,000, he is saying his tax law will target only those high-income taxpayers,” said Tax Foundation analyst Taylor LaJoie. “Economists, however, trace the economic impact of these taxes past the person writing the check.”
An October study found Biden’s tax and regulatory agenda would act as a tax increase on the middle class.
“The middle-class ‘taxes’ come in the form of higher prices for energy, prescription drugs, autos, health insurance, internet service, and more,” Casey B. Mulligan, one of the study’s authors and a former economic adviser to President Trump, told the Washington Examiner.
“Because subsidies are withheld on the basis of full-time employment, they are an implicit tax on full-time employment,” the study’s authors said. “Because they are also withheld on the basis of family income, they are also an implicit tax on income.”
“We show how both of these implicit tax rates are increased by Biden’s plans, primarily because the subsidies become more generous,” the study continued.
“We estimate that the combination of these ACA modifications resembles an increase in the average marginal labor income taxes rates of 2.4 percentage points,” the study said. “These higher rates contribute significantly to our estimates of the labor market effects of Biden’s policy proposals.”
The Congressional Budget Office also estimates that raising corporate tax rates would act as a tax increase on employees, with workers typically paying more than 70% of corporate tax rates.
