Biden’s Tax-and-Spend Plans Are Big, But Wealth Gaps Are BiggerBy
Tax hikes for rich and more social spending at center of plan
It’s a bid to reverse long-run trend of wealth flowing upward
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President Joe Biden’s promise to start narrowing income and wealth gaps underpins every part of his economic program, from almost $4 trillion in spending plans to the biggest tax increase in a generation.
But even these measures may struggle to make headway against the highest levels of inequality in the developed world. The U.S. wealth divide widened further during the pandemic, as the top 1% of households added $4 trillion in net worth.
Biden has outlined plans to create well-paid jobs with infrastructure investments, expand child care and bolster the social safety net. Higher taxes on corporations and wealthy households will cover part of the bill. The president has also promised to boost minimum wages, broaden union rights and fight racial injustice in the economy.
On all these fronts, the administration is seeking to reverse trends that have become entrenched over decades. Here are some key measures to watch as Biden’s plans unfold.
Death and Taxes
Biden proposes to raise the top income-tax rate to 39.6%. His plan, which cites loopholes that “reward wealth over work,” will almost double the rate on capital gains for those making more than $1 million and eliminate a method used by private-equity investors to lower their bills. A change to the way inherited assets are taxed may raise charges on the richest estates.
There are question-marks over how effective the plan will be in the short-term. The ultra-wealthy are already racing to transfer assets to heirs to avoid any hit. Biden abandoned a proposed change to the estate tax, which allows up to $11.7 million to be transfered upon death before a 40% levy kicks in.
Biden also proposes to raise the charge on corporate profits to 28%, reversing half of his predecessor Donald Trump’s 2017 tax cut, and his administration is seeking international accord on a minimum tax for big global companies. The contribution of business to the total U.S. tax take has been steadily declining. The figure was 7.6% in 2018, the lowest since at least 1960.
Jobs and Wages
Biden says his investment plans will create union jobs, which typically pay significantly more and have better benefits. He’s backing the Protecting the Right to Organize Act to empower unions, though it faces long odds in the Senate.
The president is trying to swim against a tide that’s seen union membership plummet from one in five workers in 1983 to about half that level. The movement’s weakness was highlighted in recent weeks when an attempt to unionize at an Amazon.com Inc. warehouse in Alabama, which had Biden’s backing, was defeated in an employee vote.
Biden is also proposing to boost wages for child-care staff and federal contractors to at least $15 an hour, though he’s had to shelve plans to raise the national minimum wage to the same level. Family measures including a child-care tax credit may help restore women to the labor force. Some 2.3 million dropped out during the pandemic, and the steepest decline was among women with two children.
Booms and Busts
Inequality often widens after recessions. Low-wage workers are more likely to lose their jobs in the downturn, and it takes longer for the benefits of the recovery to reach them. Both patterns were clear in the aftermath of the 2008 financial crisis.
But in the Covid-19 crisis, policy makers found a way of cushioning the blow. Direct payments to households as well as beefed-up unemployment benefits ensured that millions of low-paid Americans didn’t suffer a sharp decline in income after losing their jobs. The same tools could prevent inequality from widening in future downturns -- if policy makers are prepared to use them.
A plan for so-called automatic stabilizers -- which would immediately release support payments tied to economic conditions when a recession arrives -- has been endorsed by about two dozen Senate Democrats and members of the administration, but hasn’t been included in the president’s plan. He’s also only allocating $2 billion for modernizing creaky unemployment systems that struggled to cope with the pandemic layoffs.
Race and Education
Racial divides are apparent in every area of the economy, from the yawning wealth gap between Black and White Americans to labor markets where the jobless rates for Black and Hispanic workers are persistently higher.
One measure in Biden’s plan aims to pump $46 billion into historically Black colleges and universities. William Spriggs, chief economist to the AFL-CIO and a professor at Howard University, an historically Black institution, is critical of the plan and backs reparations as a broader and more direct strategy for closing racial divides.
“It shows no understanding of the size of the wealth gap,” he said of Biden’s college plan -- pointing out that Black households headed by college-educated workers typically have the same wealth as those headed by White high-school dropouts, so degrees are no guarantee.
Other parts of Biden’s program may bring particular benefits to Black Americans. Spriggs cites the investment in pre-school education. “That makes a huge difference for Black children,” he said. “They just don’t have the same access to quality early childhood education -- and we know how big that investment pays off.”
Doctors and Bills
Health is one of the most visible dimensions of inequality in the U.S., the only major advanced economy that doesn’t guarantee universal care. Life expectancy is significantly longer at the top of the ladder. One study concluded that the U.S. health care system effectively redistributes income from the poor to the rich.
Biden is seeking to spend $200 billion on extending health-insurance tax credits in the Covid-19 relief plan. He didn’t include the proposals for Medicare expansion and drug price reform that some Democrats have pushed for. One wing of the party, headed by Senator Bernie Sanders, supports a universal system.
About 10% of the U.S. population is uninsured, rising to more than one-third for Hispanic adults. Even among those who have coverage, about one-third are “underinsured” -- meaning they have high deductibles or medical bills -- and that share is growing. One in three Americans skips medical care to avoid high bills.