As President-elect Joe Biden's tax plan takes center stage, the looming question remains: Will it secure approval in Congress? This two-part series delves into the intricacies of Biden's tax proposals, exploring the details and assessing the political landscape that will determine the fate of these policies.
Part 2: Political Feasibility of Joe Biden's Tax Plan
The journey of any tax legislation begins in Congress, where approval is essential for any proposed changes to become law. The process unfolds in two key chambers—the House and the Senate—guided by the House Ways and Means Committee and the Senate Finance Committee. The challenge lies in achieving a consensus between both chambers to present a unified bill to the President.
Post-2020 Election Scenario
As of the 2020 election results, Democrats secured control of the House, setting the stage for potential advancement of Biden's tax plan. However, the Senate's political landscape introduces complexity. With Republicans securing 50 seats and Democrats holding 48, the balance hinges on the outcome of the two Georgia runoff elections.
Potential Scenarios:
- Democratic Win in Georgia:
- If Democrats secure both seats, the Senate would be evenly split (50-50), with Vice President Kamala Harris holding the tie-breaking vote. This scenario significantly boosts the chances of Biden's tax plan becoming a reality.
- Republican Control of the Senate:
- If Republicans maintain control, implementing Biden's tax plan becomes more challenging. Ambitious provisions, including raising the top individual rate, imposing the Social Security tax, and increasing the capital gains rate, may face substantial hurdles.
Provisions at Risk and Potential Bipartisan Support
Provisions Likely to Face Challenges:
- Raising the top individual rate to 39.6%.
- Imposing the 12.4% Social Security tax on earnings over $400,000.
- Increasing the capital gains rate to 39.6% for taxpayers with over $1 million in income.
Moderate Provisions with Bipartisan Potential:
- Expanding the child tax credit.
- Providing COVID-19 stimulus and relief.
A Republican-controlled Senate may resist most tax proposals, particularly those centered on tax increases. However, potential cooperation could emerge for a bipartisan bill focusing on infrastructure spending while preserving aspects of the Tax Cuts and Jobs Act.
Key Players and Possible Outcomes
Republican Scenario:
- Mitch McConnell's Leadership:
- If Republicans triumph in January, Senator Mitch McConnell (R-KY) is expected to retain his position as Senate majority leader. He is likely to advocate for tax reform provisions from the Tax Cuts and Jobs Act.
- Senator Mike Crapo's Influence:
- Senator Mike Crapo (R-ID), poised to lead the Senate Finance Committee if Republicans retain control, has been a proponent of Tax Cuts and Jobs Act provisions.
Democratic Scenario:
- Leadership Changes:
- A Democratic sweep in Georgia would see Senator Chuck Schumer (D-NY) becoming Senate Majority Leader in January, with Senator Ron Wyden (D-OR) likely taking over as Chair of the Senate Finance Committee.
- Policy Implications:
- Democrats in control of both chambers might pave the way for a more progressive tax plan. Past Democratic control resulted in the passage of the Affordable Care Act.
Potential Impact on High-Income Households
According to the Tax Foundation's analysis, the Biden Harris tax plan could lead to an 11.3% decrease in after-tax income for the top 1% of high-income households. Advocates argue that these tax increases would fund stimulus and relief efforts crucial for national recovery.
In contrast, if the Tax Cuts and Jobs Act provisions persist, the top 20% of earners could see a 2.4% increase in after-tax income. Supporters of trickle-down economics perceive this as vital for economic recovery and strongly oppose higher taxes on the affluent.
Awaiting Clarity: The January Runoff Elections
The nation's tax policy future remains uncertain until the January runoff elections in Georgia. As the year concludes, marked by uncertainty, it is certain that all eyes will turn to Georgia in January for insights into the trajectory of tax policies under the Biden administration.
Note: The content provided in this article is for informational purposes only and does not constitute tax advice. Individuals are advised to consult with a tax advisor for advice tailored to their specific situations.