Many economists believe that taxes should be increased on the wealthy, both to help curb the budget deficit and to narrow the gaping inequality between rich and poor in this country.
The top marginal tax rate is now 37% for taxable income above $539,000. While President Joe Biden would like to see a tax hike, that is highly unlikely with the present Congress in office.
He would need support from all 50 Democrats in the Senate, which he doesn’t have. Sen. Joe Manchin’s (D-W. Va.) support has proven to be particularly elusive.
But former Treasury Secretary Lawrence Summers does support a tax increase, and he thinks it could aid the Federal Reserve’s quest to subdue inflation. Consumer prices soared 9.1% in the 12 months through June, a 40-year high.
“Fiscal policy makes a big difference,” the Harvard economist told Bloomberg. “Just the right thing to do is to raise taxes right now to take some of the demand out of the economy.” Taking that demand out of the economy is what would dent inflation.
No New SpendingAnd to make sure that’s the case, the revenue brought in by tax increases shouldn’t finance new spending, Summers said. That puts him at odds with Biden, who has been fighting for more spending for over a year.
“This is not the time for anything that’s going to be a big new spending program,” Summers said.
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So how can Biden and his allies in Congress get a tax increase passed?
“If Democrats want to enact larger tax increases on the rich — and help pay for expansions of pre-K, college, healthcare, paid leave, clean energy programs and more — the path to doing so is straightforward: he party needs to win more elections than it did [in 2020],” wrote New York Times columnist David Leonhardt.
“That isn’t easy, of course. In many conservative and moderate parts of the country, most voters agree with the Democratic Party’s call for high-end tax increases.
“But they have enough other disagreements with the party that they still often vote Republican. And elected Republicans remain almost unanimously in favor of historically low taxes on the wealthy.”
Corporate TaxesGetting back to Summers, he also sees room for tax reform on the corporate side. “We can raise substantial revenue by cutting corporate-tax loopholes,” Summers said.
Going beyond loopholes, Biden last year proposed raising the corporate tax rate to 28% from 21%. Many Democrats support the idea.
“The revenues these changes would raise would begin to restore the nation’s eroded revenue base so that it can … broaden opportunity, support workers and those out of work, and ensure healthcare for everyone,” according to the left-leaning Center on Budget and Policy Priorities.
But opponents of raising business taxes note that any increase will likely just be passed along to consumers, so it won’t be of much help to them.