On Wednesday, U.S. President Joe Biden’s campaign vow to raise taxes on corporations and the rich as part of a fight against glaring income inequality in the United States received an unexpected boost.
Early attempts by Biden and his Democratic colleagues to raise tax rates were met with stiff opposition in Congress from Republicans and some Democrats. However, a surprising reversal by West Virginia Democratic Senator Joe Manchin, a swing vote in the Senate, has given Biden’s tax program fresh life.
Since the 1940s, the amount of tax income contributed by US corporations to pay roads and schools has decreased.
Biden has frequently stated in government that businesses should instead pay a “fair share,” in contrast to Republicans’ devotion to private markets, which began with former President Ronald Reagan’s victory in 1980 and has been bolstered by waves of tax cuts and deregulation by both parties.
The new compromise package includes $430 billion in increased energy spending, electric vehicle tax credits, and improvements in health insurance. It more than pays for itself by raising minimum taxes on large corporations and enforcing current tax regulations, according to a joint statement from Manchin and Senate Majority Leader Chuck Schumer.
During a speech on Thursday, Biden stated that the agreement would “for the first time in a long time begin to restore fairness to the tax code – begin to restore fairness by making the largest corporations in America pay their fair share without any new taxes on people making under $400,000 a year.”
They said that the plan would impose a 15% minimum tax on firms with profits above $1 billion, raising $313 billion over a decade. Companies might deduct net operating losses and tax credits from the 15%.
The corporate tax rate in the United States fell from 35% to 21% after a 2017 tax cut pushed by then-President Donald Trump and his fellow Republicans, but many companies pay much less than that, and some of the largest pay no federal taxes, according to research groups such as the Institute on Taxation and Economic Policy.
Last year, Biden advocated hiking that rate to 28 percent as part of an infrastructure investment measure, but the tax component was removed.
The new Manchin-Schumer package also tries to fix the so-called carried interest loophole, which Democrats have long sought to close.
Carried interest is a long-standing Wall Street tax shelter that allows many private equity and hedge fund financiers to pay the lower capital gains tax rate on a portion of their income rather than the higher income tax rate paid by wage earners.
According to the senators, closing the loophole would raise $14 billion.
Schumer stated that the proposal will “lower prescription drug prices, tackle the climate crisis with urgency and vigor, ensure the wealthiest corporations and individuals pay their fair share in taxes, and reduce the deficit.”
The Manchin-Schumer bill is far less expansive than the multitrillion-dollar spending bill Democrats envisioned last year.
However, it signals a significant step forward for Biden’s policy agenda ahead of the Nov. 8 midterm elections, which could determine whether Democrats keep control of Congress.
It came as Biden was celebrating Senate passage of a bill aimed at boosting the United States’ semiconductor industry, another key priority of his administration, and as he struggles with low job approval ratings and dwindling support from his own party following a series of conservative Supreme Court rulings.
“This bill will reduce the deficit beyond the record-setting $1.7 trillion in deficit reduction we have already achieved this year, which will help fight inflation as well,” Biden said in a statement.
“And we will pay for all of this by requiring big corporations to pay their fair share of taxes, with no tax increases at all for families making under $400,000 a year,” he stated.