You may have noticed that President Biden didn’t spend much of last week’s State of the Union address talking about new policy proposals in his then-forthcoming budget. That’s what presidents traditionally use the State of the Union for, but doing so presumes that Congress will care, which the Republican-controlled House did not. So Biden dispensed with that charade and instead used the speech to bait House Republicans and the de facto presidential nominee who enslaves them. He made the State of the Union political.
The practical irrelevance of Biden’s budget proposal for fiscal year 2025—which was made public on Monday, and will go nowhere in Congress like all its predecessors—renders that document political too. It’s not a “here’s what we’re going to do” document, but a “here’s why you should reelect me and give me a Democratic Congress” document. Which in some ways makes it more interesting, especially with regard to taxes.
The big policy questions next year won’t be about spending but about taxation. That’s because the Trump income tax cut will expire at the end of 2025. A very good case can be made for doing nothing at that point, as this would restore the top rate, paid on individual income exceeding $609,350, to 39.6 percent after Trump lowered it to 37 percent. Doing nothing would also restore the third-highest rate, paid on individual income between $191,950 and $243,725, to 33 percent after Trump lowered that to 32 percent. Allowing this second change to occur would violate Biden’s pledge not to raise taxes on individuals earning less than $400,000. But a tax increase for people earning around $200,000 would make the tax system more progressive, not less. From a policy standpoint, the only drawback to the do-nothing option is that tax rates would go up for the two lowest income brackets, which would be regressive. Maybe we could fix that later. In the meantime, we’d save $3.5 trillion between now and 2033, according to the Congressional Budget Office.
Biden’s budget does not propose doing nothing. Biden would restore the top rate to 39.6 percent, but otherwise he’d let Trump’s income tax cuts stand, to keep his $400,000 promise. Oh, well. The rest of Biden’s tax plan addresses not policies that are due to expire but policies that will continue forever unless Congress changes them.
Trump’s corporate tax cut, from a top rate of 35 percent down to 21 percent, was permanent. Biden would raise it to 28 percent. Biden has proposed the 28 percent rate in every budget, but he’s never been able to sell it to congressional Democrats. In 2021, when Democrats still had a House majority, they proposed raising the top corporate rate to 26.5 percent, and even that couldn’t clear Congress. To help compensate for this setback, the 2022 Inflation Reduction Act, or IRA, created a corporate minimum tax on the largest companies that Biden now proposes to increase from 15 percent to 21 percent. Biden would also create a new 25 percent minimum tax on everyone earning more than $100 million, and double Trump’s 10.5 percent tax on the foreign earnings of multinational corporations to discourage tax havens.
As he also proposed last year, Biden would quadruple the IRA’s itty-bitty buyback tax from 1 cent on the dollar to 4. Biden also repeats his proposal to raise the top capital gains rate, which Trump lowered in 2017 to 20 percent, all the way up to 39.6 percent, bringing the top bracket for capital gains in line with the top bracket for labor income. It makes no sense to tax labor at a higher rate than capital. Biden would also eliminate various loopholes that benefit the rich, including the carried interest loophole, which Senator Kyrsten Sinema wouldn’t let him kill two years ago. And to help deal with Medicare’s pending funding shortfall, Biden would increase the Medicare taxes on people earning more than $400,000 from 3.8 percent to 5 percent.
Biden didn’t put all these proposals into his budget because he thinks Congress will consider passing them. He put them in there to say: I dare you to oppose them. Any Republican who opposes Biden’s tax proposals will have to explain their hesitation to increase taxes on the rich. The threshold to count as the “one percent” is $650,000, but $400,000 isn’t exactly poor. Even Republicans favor, by a 46 percent plurality, higher taxes on people earning more than $400,000, according to an April 2023 survey by the Pew Research Center.
The main target is, of course, Trump, whose advisers reportedly want to drop the corporate tax rate to 15 percent and lower the top income tax rate possibly all the way down to 30 percent, paying for this with a 10 percent tariff on all imported goods that Trump’s embraced publicly. Since tariffs raise prices, that would effectively shift the tax burden from corporations and the rich to consumers, which of course is regressive. There’s talk of capping the capital gains tax at 15 percent. Not all these details can be attributed to Trumpworld, but they’re all part of the GOP agenda, which has a tendency to become policy whenever a Republican president is in the White House.
At bottom, what the Biden budget says is: Do you think rich people pay too much in taxes? Then Trump’s your guy. If you think they pay too little, then vote Democratic.
