Yahoo Finance Tax and Minimum Wage: Biden's big battle with business
Joe Biden has been officially sworn in as the President of the United States, which means his proposals put forward in his 2020 campaign can finally come to fruition.
While some are widely supported, like his plan to tackle COVID-19, others will face some pretty hefty opposition. His stance on tax and the minimum wage, for example, will be up for dispute - with big corporations vowing not to go down without a fight.
His main qualm is with former President Donald Trump’s 2017 tax reform, which saw tax cuts delivered to businesses and individuals, but largely benefited the wealthy.
In fact, tax experts found that around 83 per cent of Trump’s tax cuts flowed to just the top 1 per cent of earners in the US.
Given this was such a large policy push in Biden’s campaign, it’s likely he’ll make this a priority.
And, with Democrats now representing the majority in the Senate, it’s also likely he’ll see at least some of his policies legislated - and many of Trump’s policies scrapped.
Here’s a breakdown of Biden’s policies.
Tax the rich
Trump’s 2017 Tax Cuts and Jobs Act was the largest overhaul of US taxes in three decades, and was seen as a pretty big win for the rich, banks and corporations.
Biden wants to turn this around.
Though Biden’s stance on taxing the wealthy wasn’t as tough as Senator Elizabeth Warren’s, who wanted to see the richest 0.1 per cent of Americans pay an annual 2 per cent tax on every dollar on assets over US$50 million, and 6 per cent on every dollar over US$1 billion.
Instead, Biden wants to repeal Trump’s 2017 tax cuts and raise the highest personal income back up to 39.6 per cent (from 37 per cent). He also proposes to cap tax deductions for wealthier Americans.
He won’t, however, raise taxes for anyone making less than $400,000.
He’ll also ask corporations to pay up, raising their tax rate to 28 per cent (from 21 per cent). He also wants to crack down on companies using tax havens by requiring a minimum tax on all foreign earnings of US companies. That will go up to 21 per cent - twice what Trump’s offshore tax rate was.
Opposers of this policy include rapper 50 Cent, who slammed the proposal in a tweet.
👀Yeah, i don’t want to be 20cent. 62% is a very, very,bad idea. 😟i don’t like it ! #abcforlife nov 18 #starzgettheapp pic.twitter.com/y9TsSs0o6Q
— 50cent (@50cent) October 20, 2020
A group of Republican senators have already signed a pledge to oppose tax hikes, and will defend Trump’s tax cuts.
They argue raising the corporate tax rate will prolong the economic downturn, and make the US less competitive.
Tax relief for families
Tackling inequality needs action at the top and the bottom, and Biden’s set on offering low-and-middle income taxpayers a break.
He’s proposed expanding the child tax credit to $3,000 per child for children aged 6 to 17, and $3,600 for children aged under 6.
The child care credit will be expanded to 50 per cent of a family’s childcare costs for children under 13 (max $4,000 for one child and $8,000 for two), and gradually phasing it out for families earning between $125,000 and $400,000.
He’s also proposed tax credits to help families afford health insurance and even their first home.
The minimum wage
Part of Biden’s US$1.9 trillion pandemic relief plan is to raise the minimum wage to at least US$15 per hour by 2024 - something that’s been opposed by Republicans.
“No one working 40 hours a week should live below the poverty line,” Biden said in a speech on 14 January.
“If you work for less than $15 an hour and work 40 hours a week, you’re living in poverty.”
The current minimum wage in the US is US$7.25 (AU$9.35), and it has been since 2009. In Australia, the minimum wage is $19.84.
US economists have, in the past, opposed a federal minimum wage of US$15 per hour, saying it would harm youth and adult employment levels as well as the number of jobs available.
Big businesses aren’t lobbying too hard against the minimum wages, with Amazon and McDonalds both announcing they will support the hike in 2019.
But small businesses aren’t as keen, saying while large companies can absorb the cost, small businesses don’t have the same advantage.
Will Biden’s policies pass?
The Democrats now hold the majority in the Senate, albeit narrowly.
This clears the path somewhat for Biden to pass policy changes, but with such a thin lead, experts believe it could go either way.
US Chamber of Commerce’s vice president of tax policy and economic development, Caroline Harris, told CNBC it would be “extremely challenging” for Biden to roll back the entirety of Trump’s tax laws.
However, she said certain aspects of the legislation could be effectively repealed by other means, like introducing an unrelated spending bill or regulatory process.
Founder of TaxHub, George Birrell, told Yahoo Finance that either way, it won’t happen quickly.
“While he [Biden] pledged to repeal these cuts immediately, the process is more complicated than that and ongoing issues with the pandemic may delay plans for a tax increase.”
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