Predicting How Biden’s Tax Hikes Would Impact Business
By Stuart E. Leblang, Michael J. Kliegman and Amy S. Elliott
Joe Biden and Donald Trump are officially going head-to-head in the race for the U.S. President, after receiving formal nominations from their respective political parties. Experts caution that the race will likely narrow as Election Day draws nearer, but there is no question that Biden holds a significant lead. According to a regularly updated Financial Times tracker, if the election were held today, the latest polls suggest that Democrat Biden would garner 279 electoral college votes (157 more than Republican Trump), with 270 such votes needed to win. 1 It is very likely that the Democrats will retain control of the House, and—especially if there is a strong turnout for Biden—Republicans could lose their majority in the Senate.
Below we outline what a Biden presidency (with Democrats strengthening their majority in the House and securing a narrow Democratic majority in the Senate) could mean for tax policy.
Specifically, this report will tackle:
- Timing of possible tax changes (accounting for the filibuster and budget reconciliation);
- The influence of moderate Democrats;
- Biden’s major business tax proposals and their likelihood of enactment; and
- Our predictions on which industries might be most impacted.
Note that the following should not be read as an endorsement of any of these policies. Further, the outcome of the election will certainly be influenced by what happens over the next eight weeks. These are merely forecasts based on what is known at this time (at the time of publication, Biden had not yet put out a formal business tax plan). 2
How Relevant Is the Filibuster?
Major tax law changes have been challenging to enact in recent years, although Trump and Republican leaders in the House and Senate were able to get what many have characterized as comprehensive tax reform (the Tax Cuts and Jobs Act or TCJA) passed in 2017 through a process known as budget reconciliation. The main reason for the challenge is that there are 100 lawmakers in the Senate, and each one of them has the power to delay or stop consideration of a bill by indefinite delay via filibuster, which can be halted through a cloture vote under Senate Rule XXII, which generally requires at least 60 votes. Since 2009, neither party has been able to secure a filibuster-proof 60-person majority in the Senate. Ultimately, TCJA passed the Senate with only Republican votes (51 total). 3
According to a RealClearPolitics polling average updated September 6, there are 46 Senate seats that are likely or lean Democratic, 46 seats that are likely or lean Republican, with eight seats that remain a toss-up between Democrat and Republican. 4 If every single toss-up goes to a Democrat, they will have a majority of 54 seats in the Senate. However, we suspect that if Democrats are able to secure a majority, it will be narrower (at, say, 51 Democrats, 49 Republicans, for example).
If the bill under consideration qualifies, its sponsors may be able to take advantage of the fast- track procedure known as budget reconciliation, in which Senate filibuster is precluded and all votes are by a simple majority (so that if 50 senators and the Vice President agree, the law can be changed). Tax changes are particularly well-suited for this process, as budget reconciliation is only available for law changes that impact spending, taxing, borrowing or some combination. 5 (For more details on budget reconciliation, see our May 22, 2017 report “A Trader’s Guide to the Budget Process Necessary to Achieve Substantial Business Tax Cuts.”)
Budget reconciliation bills under consideration in the Senate must comply with the so-called Byrd rule, 6 which generally requires that budget reconciliation only be used to enact legislation to reduce the deficit. Specifically, the Byrd rule could apply to strike from a reconciliation bill any provision that would cause increased spending or decreased revenues in any year outside of the budget window, which is generally 10 years. It is technically the Senate Budget Committee Chair that has discretion regarding possible deficit increases outside of the budget window when deciding whether to refer a provision to the parliamentarian for a potential Byrd rule violation. We would expect that if a Democratic-controlled Senate felt constrained by reconciliation, it would use this discretion to effectively water down the Byrd rule (as was arguably done with TCJA in 2017 7 ). While the budgetary impact of a Biden-led tax increase would be more revenue—which, on its own, would not cause a Byrd rule violation—we suspect Democrats plan to spend the revenue they generate from tax hikes, and will therefore still need to be mindful of the Byrd rule.
There will be pressure for majority Senate Democrats to bring an end to the legislative filibuster, 8 but moving a tax-increase bill will likely not be a motivating factor. 9 On the other hand, it is possible that a Majority Leader Chuck Schumer (D-N.Y.) could choose a Senate Budget Committee Chair who less stringently enforces the Byrd rule. 10
- Ultimately, we suspect that if there is a Democratic majority in the Senate, it will be small enough that—combined with institutional reluctance from the old guard—broad elimination of the filibuster via the so-called nuclear option will not occur, 11 although there is good reason to expect a lot of pressure for such elimination.
Timing and Effective Dates
Even though a Democratic-controlled Congress should be able to make changes to the tax laws under budget reconciliation as described above, there is a limit to how often this strategy can be utilized. In general, the Senate only gets one shot at a tax reconciliation bill per year. 12 And if the bill also includes spending or borrowing provisions, then no other reconciliation bills can be considered until the next legislative session (unless Congress passes another budget resolution).
- This once-per-year limit on tax reconciliation means that, in practice, it will be challenging for a new Democratic-controlled Congress 13 to get major tax law changes enacted before the federal government’s fiscal year ends September 30, 2021. More likely, it would be tied to a FY2022 budget resolution.
The first step in reconciliation is for the House and Senate to adopt a budget resolution that includes reconciliation instructions. Consider that TCJA was authorized by the FY2018 budget resolution, which was adopted in September 2017. The bill was signed into law December 22, 2017. 14 An even quicker turnaround from budget resolution to enactment might be possible if only one committee in each chamber is given authority to write the legislation (the tax writing committees: Ways and Means in the House and Finance in the Senate), so that it could go straight from committee mark-up to full-floor consideration (not the case with TCJA).
The timing of the legislative process also impacts effective dates. Based on historical precedent, if Congress were to enact major tax changes in the second half of 2021, it would likely set a prospective effective date (likely January 1, 2022) for most of the changes—especially if the changes involved an increase in the tax rate. But retroactive tax changes (even increases) do occur, especially when they are set to “apply to the full calendar year in which they are enacted . . . [or] an entire calendar year that ended before enactment.” 15
- Just because prior Congresses did not generally tend to enact retroactive tax increases does not mean that the new Congress will be bound by such precedent.
Although it is not binding, there is more precedent for retroactive effective dates in two broad scenarios: 1) rate reductions/cost recovery accelerations designed to provide relief for/stimulate the economy, and 2) abusive situations where the effective date is tied to when lawmakers publicly proposed to stop the abuse (for example, when the proposal was introduced in committee). 16 (But see the discussion at “#3: Increase the Tax on Investment Income.”)
Stepping back, even tax hikes with prospective effective dates can have an immediate impact on public companies due to the financial reporting consequences of law changes. For example, if a corporate rate increase were enacted in 2021, but did not go into effect until 2022, companies would likely get an immediate benefit on their earnings statements for the increased value of their deferred tax assets (e.g., net operating losses). The converse would be true with respect to deferred tax liabilities.
Influence of Moderate Democrats
Most indications of what Biden wants to do on tax policy have been rhetorical in nature. They include some fairly broad statements in the party platform, which was shaped in part by the Biden-Sanders Unity Task Force Recommendations. 17 A key question is how extreme the actual implementation of these broad objectives will be, particularly in the context of an assumed Democratic majority in both houses of Congress. Although the broad political agenda seems to be framed by the more progressive wing of the Democratic Party, we think that, with respect to tax changes, the most influential individuals may be a small group of more moderate Democrats in the Senate. Their votes will be needed to carry the Senate. They include individuals with whom Biden has longstanding personal relationships. As a result, such individuals are likely to have disproportionate influence on what ultimately emerges. They will not set the agenda but are likely to temper any final tax legislation from the more extreme edges.
Most notably, the so-called Blue Dog Democrats are viewed as more fiscally conservative and said they generally supported a reduction in the corporate tax rate (when it was 35 percent) as long as it did not increase the tax burden on the middle class. 18 We expect this more business- friendly group would be hesitant to make some of the tax changes that Biden has proposed on the campaign trail, especially if the economy is still reeling from the impacts of the coronavirus pandemic. However, this same group of more fiscally conservative lawmakers may be more likely to push for application of the budget rule generally ensuring that any spending increases are offset with revenue increases (referred to as Pay-As-You-Go or PAYGO), which could cause a revenue-raising tax increase to be a necessary evil.19
So what business tax changes might more moderate Democrats get behind? We will focus on three primary tax increases: 1) the corporate rate, 2) international tax changes, and 3) capital gains tax changes.
#1: Increase the Tax on Corporations
Biden has consistently said that he wants to increase the corporate tax rate from 21 percent to 28 percent. “I’m going to raise it back to 28 percent, provide hundreds of billions of dollars,” Biden promised during a speech July 9. 20 During a CNBC interview May 22, he said: “The corporate tax rate, I’d move back to what . . . we had proposed at 28 percent.” 21 Biden seems particularly focused on what corporations did with the savings from their TCJA tax cut (he thinks they largely spent it on stock buybacks rather than increasing their payrolls) and has indicated that the revenue raised from increased tax rates would be used to invest in the middle class. 22 During the Democratic debate February 19, Biden said increasing the corporate tax rate from 21 percent to 28 percent “would raise almost $800 billion a year.” 23
We are fairly certain the corporate tax rate will go up under Biden and a Democratic-led Congress. It just may not go all the way up to 28 percent (although it is not out of the question for some in the party to push for it to go higher than 28 percent). Each one percentage point increase in the corporate income tax rate generates about $100 billion over the 10-year budget window.24 Such an increase is a relatively easy, efficient way to come up with revenue for Democrats’ spending priorities—not to mention that it aligns with Biden’s mantra that corporations should pay their fair share of taxes. A somewhat lower rate makes sense when you consider that the standard corporate income tax rate in China is 25 percent, meaning—as President Trump’s campaign has not hesitated to point out—“Biden’s plan would make it more expensive to do business in America than in . . . China.” 25
While we suspect moderate Democrats will be able to successfully limit the increase so that the rate does not go as high as 28 percent, some increase looks increasingly likely, especially since left-leaning economists are already preparing a defense to concerns that businesses burdened by the coronavirus pandemic should not also be hit with a tax hike. 26 On August 25, University of Chicago Economics Professor Austan Goolsbee (who served on the Council of Economic Advisers during the Obama administration) argued that an increase in the corporate tax rate would not harm struggling businesses. “If you’re not making a profit, you don’t pay any taxes. That’s how the corporate income tax system works. So if they are losing money because of [the coronavirus], then this would have no bearing on them.” 27
- We predict that the corporate tax rate will go up, but likely not as high as 28 percent.
Increasing the corporate tax rate is just the tip of the iceberg for Biden. He also wants to target businesses that are extremely profitable but that pay little or no federal income tax. The poster child for this phenomenon is currently Amazon.com, Inc. (NASDAQ: AMZN) (Amazon), but this is not a new problem (although the reasons for it have changed). 28
Biden has called out Amazon on numerous occasions. On July 9, he said: “the days of Amazon not paying federal income tax will be over.” 29 On May 22, he said: “I think Amazon should start paying their taxes. Okay. I don’t think any company . . . should actually be in a position where they pay no taxes and make billions and billions and billions of dollars.” 30
According to Amazon’s most recent annual report, 31 the company has been able to legally minimize its federal taxes largely due to its taking advantage of accelerated cost recovery 32 and certain business tax credits. 33 It may seem like ancient history now, but the corporate alternative minimum tax (AMT) was enacted in the Tax Reform Act of 1986 largely in response to concerns that big companies, taking advantage of tax incentives such as accelerated depreciation, were reporting significant amounts of book income while paying little or no U.S. income tax. 34 TCJA repealed the AMT for corporations.
Biden’s response—which targets companies such as Amazon—is to effectively bring back the AMT in the form of a new 15 percent corporate minimum tax on book income. Although Biden himself has not detailed the minimum book tax proposal in his own speeches (the proposal was first outlined by his campaign team in response to Bloomberg News receiving a copy 35 ), he often seems to make broad references to it. For example, during his August 20 speech at the Democratic National Convention, he said: “And we can pay for these investments by ending loopholes, unnecessary loopholes and the president’s $1.3 trillion tax giveaway to the wealthiest one percent and the biggest most profitable corporations, some of which do not pay any tax at all. . . . But it’s long past time the wealthiest people and the biggest corporations in this country paid their fair share.” 36 Needless to say, there is direct conflict between Biden’s minimum tax on book income proposal and his other proposals that would incentivize certain investments and other behaviors through the use of the tax code.
Biden’s 15 percent minimum tax proposal would apparently only apply to companies that report net U.S. income of more than $100 million, but pay zero federal taxes (or receive a tax refund, something that may be more common now because of COVID relief turning back on the five-year net operating loss (NOL) carryback provision). The tax would be on companies’ book income, and the only offsets allowed to reduce the minimum tax would be foreign tax credits and NOLs. Prior to COVID, the Biden team estimated that about 300 companies would end up being subject to the tax, which they thought could bring in about $400 billion over 10 years. 37 Other big-name firms expected to be impacted include Intel Corporation (NASDAQ: INTC), AT&T Inc. (NYSE: T) and Berkshire Hathaway Inc. (NYSE: BRK.A).38
- Effectively reinstating a corporate AMT—however it is designed—does seem like a tax change that could get through a Democratic-controlled Congress.
A related tax change involves the ability of corporations to engage in stock buybacks, which have been an increasingly popular way for companies to deploy cash and increase earnings per share by reducing the number of shares outstanding. On July 9, Biden dismissed the notion that corporations only owe a duty to their shareholders. “They have a responsibility to their workers, to the community, to their country. That is a newer, radical notion,” 39 he said.
Biden has not proposed an outright ban on stock buybacks across-the-board. Note, however, that stock buybacks are currently prohibited for borrowers and affiliates that received certain loans in the Coronavirus Aid, Relief, and Economic Security (CARES) Act—at least until one year after the loan has been repaid (the prohibition is broad, including dividends as well).40 Even President Trump was a vocal supporter of that stock buyback prohibition. 41
But Biden does seem to be waging a pressure campaign to effect a broader prohibition—at least until American workers have recovered from the pandemic. On March 20, Biden tweeted: “I am calling on every CEO in America to publicly commit now to not buying back their company’s stock over the course of the next year. As workers face the physical and economic consequences of the coronavirus, our corporate leaders cannot cede responsibility for their employees.” 42
Stock buybacks have become a target because many progressives believe that the tax relief corporations enjoyed as a result of TCJA (lowering the corporate tax rate from 35 percent down to 21 percent) did not largely inure to the benefit of workers in the form of increased wages but rather to the benefit of the investor-class in the form of increased buybacks and dividends.43
Although Biden has not explicitly proposed further limits to stock buybacks, that idea is something that Senate Minority Leader Chuck Schumer (D-NY) and Sen. Bernie Sanders (I-Vt.), among others (including and Sen. Marco Rubio (R-FL) 44), have floated. In February 2019, Schumer and Sanders authored an op-ed in the New York Times indicating that they would introduce legislation imposing “preconditions” before a company could buy back its own shares, including paying all workers at least $15 per hour, giving all employees at least seven days of paid sick leave and providing workers with “decent pensions” and solid health benefits.45 It would be a dramatic expansion of the limits on buybacks embedded in the CARES Act.46
We doubt that Congress would ultimately take so large a step into an area historically within the domain of state corporate law and the judgment of corporate management as to prohibit stock buybacks outright. On the other hand, to the extent it could plausibly link what is perceived as an abusive transaction to favorable tax treatment, Congress might find tax policy a more comfortable venue in which to target stock buybacks. Since most stock buybacks are executed via market purchases rather than through direct transactions with shareholders, the rules that apply to corporate redemptions are generally inapplicable to these transactions.
We think that actually attacking stock buybacks through the tax law would be very difficult and unpopular from the standpoint of nearly all constituencies. One possible approach might be for Congress to impose dividend rather than capital treatment to stock sales that occur during a period when the issuer is in the market purchasing its stock. Congress could grant regulatory authority to the Treasury Department to promulgate rules that would bifurcate sale proceeds between capital and dividend transactions. The only redeeming feature of such a plan is that, by imposing prohibitive administrative burdens on a company wishing to buy back its stock and the brokerage industry, this would kill all stock buybacks.
- We predict lawmakers will not agree to additional, broad limits on stock buybacks.
#2: Increase the Tax on Foreign Profits
While a rocky economy could make certain tax increases hard to sell, a tax increase on the overseas operations of multinational corporations should be easier, as it arguably fits within Biden’s popular47Made in America push. The Biden campaign website points out that Trump “gave huge tax cuts to the largest multinationals with no requirement that they invest in the United States or favor U.S. jobs over offshoring.”48 In response, Biden has said that he would “double the tax on foreign profits so we don’t encourage people to leave and build abroad.” 49
While Biden has been critical of the international tax changes brought about by TCJA, there is every indication that he will generally preserve the regime (specifically, the tax on global intangible low-taxed income—GILTI—and the deduction for foreign-derived intangible income— FDII) that was originally designed to encourage the onshoring of intellectual property to protect the corporate tax base. When Biden says that he wants to double the tax on foreign profits, he is talking about the rate on GILTI, which is currently set at 10.5 percent. 50
An increase in the GILTI rate should be a fairly simply way for Biden to score political points (not to mention revenue for his other priorities). The GILTI rate is already scheduled to increase to 13.125 percent in 2026. We expect that Biden will seek to double the rate to 21 percent (likely effective in 2022, at the earliest). Even if he faces resistance, we doubt he will settle for simply accelerating the already-scheduled rate increase and will try to push for something more.
If Democrats do successfully increase the base corporate rate, such an increase will correspondingly impact the GILTI rate, as it is now set at half the base rate. However, Biden apparently envisioned that GILTI would be set at 21 percent while the base corporate rate would be set at 28 percent, arguably preserving a built-in incentive to locate profits offshore. 51
However, on September 9, Biden announced that he also plans to impose a 10 percent surtax “on companies that avoid paying U.S. taxes by offshoring jobs and manufacturing, only to sell those goods back to the American consumer We’re going to add a 10 percent offshoring penalty surtax to your bill. No more deductions for writing off expenses for the cost of sending jobs overseas,” he said. 52
While the details of the proposal have not yet been made public, press reports indicate that the surtax will be imposed “on the profits from any production by a U.S. company overseas for sale on American soil, making the overall tax rate on those profits 30.8” percent. 53 The surtax will reportedly “also apply to call centers and services that a U.S. company locates overseas but that serve the” United States. Further, “Biden is also proposing a 10 [percent] ‘Made in America’ tax credit . . . . available for revitalizing closed or nearly closed facilities, retooling or expanding facilities, and bringing production or service jobs back to the U.S. and creating U.S. jobs” or “when a company is increasing manufacturing wages above the pre-Covid baseline for jobs paying up to $100,000.” 54
It is unclear if the 10 percent surtax is in addition to the disallowance of the 10 percent return on qualified business asset investment (QBAI), which is part of the GILTI calculation (designed to target intangible income, thereby allowing a reduction for income deemed to be from tangible investments). Many lawmakers (including Sen. Amy Klobuchar (D-Minn.), Sen. Sheldon Whitehouse (D-R.I.) and Rep. Lloyd Doggett (D-Texas)) have introduced bills that would eliminate the exemption for a return on QBAI, which they view as a tax break for outsourcing. 55 Tax Notes is reporting that Biden would remove “the tax exemption on the first 10 percent of foreign profits and ensuring the minimum tax applies separately to earnings in each country.” 56
- We predict lawmakers will agree to significantly increase the tax rate on GILTI.
It is worth noting that there are ways Congress could cause companies to pay more U.S. tax on their offshore profits without a rate hike. In a series of fairly high profile press reports, some have argued that regulations implementing the international TCJA rules (including GILTI) contained carve outs “that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits . . . Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.” 57
A Democratic-led Congress could use the Congressional Review Act of 1996 58 to pull regulations that were published within the last 60 legislative days (which would include final regulations expanding the GILTI high-tax exception 59 issued in July).
Another rule-change that Biden has hinted at involves regulations spearheaded under the Obama administration that would have limited the tax benefits of leaving the United States and redomiciling in another jurisdiction (so-called inversions). During the Trump administration, a portion of the regulations under IRC Section 385 (that would recharacterize some related-party debt as equity to get at earnings stripping concerns associated with inversions) were removed. Biden’s “Made in America” plan states plainly that Biden would “[tighten] anti-inversion rules that Obama-Biden put in place and which Trump has sought to weaken.” 60
We would be remiss not to point out that while Biden’s rhetoric about the international tax changes in TCJA might be compelling (“Trump’s tax breaks provide giveaways even if companies offshore or move investment overseas” 61 ), they are not entirely accurate. The GILTI regime is, in many respects, harsher than prior law. Before TCJA, a multinational could avoid paying U.S. tax on its offshore income (as such income would be permanently deferred and not repatriated). Now, largely through the GILTI regime, such income is taxed currently at 10.5 percent (effectively imposing a minimum tax on all of a U.S. multinational’s offshore income).
Granted, the winds are changing when it comes to international tax norms, and efforts by major economies to put in place a global minimum tax and agree on uniform rules to address profit shifting and base erosion will likely influence what direction a Democratic-led Congress chooses to go when it comes to international tax reforms.
#3: Increase the Tax on Investment Income
Biden has proposed a number of radical changes to the taxation of investment income. Taxing long-term capital gains at 39.6 percent (instead of 20 percent) for those making over $1 million and repealing stepped-up basis at death 62 are two of his most high-profile campaign promises. Calls to repeal the favorable treatment of carried interest would become largely moot if Biden’s proposal to tax capital gains at the same rate as ordinary income for high-income individuals were enacted. 63
We suspect that a retroactive increase in the tax rate on capital gains, especially one proposed in a bill at the start of the year, could be in play as a way for Democrats to target the wealthy and address income inequality (eliciting rhetoric that would empower the left wing of the Democratic party—tax changes that elevate middle class needs over investor class wants), all while raising much-needed revenue for their other priorities. That said, if the increase is prospective to 2022 it could cause investors to accelerate capital gains recognition in 2021 (this occurred in 2012, in advance of the 3.8 percent Section 1411 tax on net investment income going into effect beginning in 2013), generating much-needed revenue in the 10-year budget window (given that a capital gains increase that is large enough could actually reduce revenue in the long-term as higher rates will cause investors to defer realizations of accrued gains—at least assuming stepped-up basis is not also repealed—shrinking the tax base).
Although past increases in the capital gains tax rate have generally been prospective, 64 there is a risk that Democrats could push for such a tax hike to be retroactive back to taxable years beginning on or after January 1, 2021. 65 Biden is already planning to spend the money to pay for expanded access to affordable healthcare.66 And—as we previously mentioned—“tax legislation that is retroactive to the beginning of the year of enactment has routinely been upheld against due process challenges.” 67
An important consideration with respect to the likelihood of capital gains tax increases is the estate tax. While targeting those with multi-million dollar gains in the stock market for income tax increases may be politically popular, the constituency against increased estate taxes cuts across all 50 states and is made up of owners of many closely held businesses including the proverbial family farm. Between this political consideration and difficulties administering carryover basis at death, significant changes in this area could be challenging.
- Just because a near doubling of the capital gains tax rate for the wealthy is on the table does not mean a new Democratic-controlled Congress will go along, but we suspect there will be strong support for a somewhat tempered increase.
Nevertheless, Senate Finance Committee Ranking Member Ron Wyden (D-Ore.), who would be expected to reclaim chair of that committee should Democrats regain control of the Senate, has proposed an annual tax on unrealized gains in tradable assets such as stocks (mark-to-market) along with a lookback rule upon realization of nontradable assets such as real estate—his “Treat Wealth Like Wages” proposal 68 —that would generate enough revenue to “save” Social Security. While Biden has not endorsed the plan, there is a chance it could gain steam if there is a Democratic sweep.
Although the proposal is different from the infamously named wealth tax, in practice, it would accomplish many of the same objectives. A wealth tax—something that Democratic presidential candidates Sen. Elizabeth Warren (D-Mass.) and Sanders both supported—is essentially an annual levy of (according to Warren’s proposal) 2 percent on net worth (not income) between $50 million and $1 billion, and 3 percent on net worth over $1 billion (the Sanders proposal had different rates and thresholds, but topped out at 8 percent on net worth over $10 billion).
In recent months, states such as California and New York have proposed tax increases on millionaires’ income to help address strained budget deficits caused by the coronavirus pandemic. 69 But some lawmakers in California appear ready to venture into the realm of taxing unrealized gains. The Wealth Tax Act would apply an annual 0.4 percent tax on net worth (excluding real estate) exceeding $30 million. 70 California’s legislative session ended August 31 with the wealth tax proposal still stuck in committee. But if California does ultimately enact a wealth tax, that could certainly pave the way for a similar levy at the federal level. 71
Although it has not been detailed extensively by Biden’s campaign, it is expected that Biden will also seek to phase out Section 199A, which allows a deduction for qualified business income (QBI) of certain pass-through entities, so that it will no longer be available for taxable incomes over $400,000. 72 The QBI deduction effectively reduces the maximum marginal tax on certain pass-through investments by 7.4 percentage points (from a current high of 37 percent to 29.6 percent), but it is set to expire in 2026. It is thought that Biden’s proposed phase out will largely impact wealthy individual owners of real estate businesses and other “large pass- through businesses with many employees or lots of physical assets.” 73 Note that the QBI deduction is largely claimed by individuals with taxable incomes at or under $400,000.[74]
Expected Impacts on Certain Industries
The Biden business tax proposals we have outlined are generally not targeted at specific industries. Analysts predict they will both increase the average federal tax rate paid by companies from 14.1 percent to 26.1 percent[75] (lowering profits and—likely—share prices76) and reduce earnings for some of the largest publicly traded companies by 12 percent.77
The main industry-specific tax proposals put forth by Biden are those focused on promoting alternative energy (Biden has promised to invest $2 trillion in alternative energy in his first term, largely paid for by an increase in the corporate tax rate).78While it does not sound like the industry boost will primarily come in the form of new tax incentives, they would play a role.79
Industries expected to be hit more than most by Biden’s higher taxes include:
While these industries might be particularly susceptible to Biden’s proposals, the business community as a whole seems to have recognized that a Democratic sweep in eight weeks will inevitably result in tax increases.84 Republican tax go-tos—like expanding 100 percent expensing, which Trump’s campaign has indicated he would like to do for certain firms that onshore production85—are potentially on the chopping block. While Biden has remained silent on whether he would curtail or extend bonus depreciation, many speculate that he would end it.86 Even if Biden wins, his proposals may be further shaped by ongoing debates over the need for stimulus in light of the coronavirus crisis versus concern over the growing deficit.[87] Tax increases may not play their traditional role if lawmakers decide massive stimulus spending is called for—whether it is paid for or not.
[1] Biden vs Trump: who is leading the 2020 US election polls?, Financial Times (https://ig.ft.com/us-election-2020/).
[2] Biden’s tax policy positions described in this report are, unless otherwise noted, largely derived from his campaign website, recent campaign speeches and the 2020 Democratic Party Platform (https://www.demconvention.com/wp- content/uploads/2020/08/2020-07-31-Democratic-Party-Platform-For-Distribution.pdf), which was approved by 3,562 delegates (with another 1,069 delegates voting no and 87 delegates abstaining) at the Democratic National Convention.
[3] https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=115&session=1&vote=00323
[4] https://www.realclearpolitics.com/epolls/2020/senate/2020_elections_senate_map.html
[5] However, there are certain points of order that, if raised in the context of reconciliation, may prohibit consideration of certain issues—even those that impact spending, taxing or borrowing—from being included in a budget bill. For example, there is a permanent point of order in the House that was designed to protect the Social Security trust fund (for more on the applicability of points of order, see James V. Saturno, Points of Order in the Congressional Budget Process, Congressional Research Service, Oct. 20, 2015 (https://www.senate.gov/CRSpubs/814bf855-39fc-4626-9356-4235537a6f89.pdf)).
[6] 2 U.S.C. §644.13.
[7] “Since the corporate rate cut will increase the deficit in the out-years, the only way it can avoid being a Byrd violation is if there are sufficient offsets . . . [S]killed economists may be able to make reasonable assumptions to support estimates of long- term budget consequences. But the Byrd rule doesn’t require reliance on such economists. Rather, the law specifies that all budget determinations are to be made by the House and Senate budget committees, meaning, effectively, the chairs of those committees. Those chairs may—but apparently need not—seek out the professional expertise I have described. . . . If the reconciliation process is now to be used principally to enable thin majorities in Congress to pass important legislative priorities—without regard to the budget effect of the legislation—it is not likely that a senior member of such a majority, such as a budget committee chair, will thwart that goal by requiring strict compliance with the Byrd rule,” according to George K. Yin, How the Byrd Rule Might Have Killed the 2017 Tax Bill . . and Why It Didn’t, American Bar Association Tax Times, Aug. 3, 2018 (https://www.americanbar.org/groups/taxation/publications/abataxtimes_home/18aug/18aug-pp-yin-how-the-byrd-rule- might-have-killed-the-2017-tax-bill/#_ftn1).
[8] For example, at the funeral for former Rep. John Lewis (D-GA) July 30, former President Barack Obama indicated that civil rights legislation may only be possible if the filibuster is removed. “If all this takes eliminating the filibuster, another Jim Crow relic, in order to secure the God-given rights of every American, then that’s what we should do,” he said, as reported by Ian Millhiser, Obama: The filibuster is a “Jim Crow relic,” Vox, July 30, 2020; and see Max Cohen, who reported that Sen. Chris Coons (D-Del.), who previously sought to block measures from Democrats to eliminate the filibuster, is now saying: “I am gonna try really hard to find a path forward that doesn’t require removing what’s left of the structural guardrails, but if there’s a Biden administration, it will be inheriting a mess, at home and abroad. It requires urgent and effective action,” in Biden signals openness to eliminating Senate filibuster, Politico, July 14, 2020 (https://www.politico.com/news/2020/07/14/joe-biden-2020- filibuster-360587).
[9] We are not alone in this assessment. See, e.g., Molly E. Reynolds, What is the Senate filibuster, and what would it take to eliminate it?, Brookings (Oct. 15, 2019) (https://www.brookings.edu/policy2020/votervital/what-is-the-senate-filibuster-and- what-would-it-take-to-eliminate-it/); and Richard Rubin, Biden Tax Agenda Hinges on Democratic Control of Senate, Wall St. J., Aug. 16, 2020 (https://www.wsj.com/articles/biden-tax-agenda-hinges-on-democratic-control-of-senate-11597586400), in which Rubin writes that “Mr. Biden doesn’t need a filibuster-proof 60-seat majority to raise taxes. Holding 50 seats and the tiebreaking vice presidency makes the Biden tax-and-spending agenda viable through fast-track procedures.”
[10] Less stringent enforcement of the Byrd rule may be the only option, as the Byrd rule is law, and experts with whom we have consulted have indicated that they are not aware of Congress (at least in recent—the last 30 years—memory) ever attempting to amend or create an exception to the Byrd rule in a budget resolution.
[11] The nuclear option has been utilized twice before in the Senate—April 6, 2017 and November 21, 2013—when “the Senate reinterpreted Rule XXII [the cloture rule] to . . . lower the threshold for invoking cloture” for certain actions (see Valerie Heitshusen, Senate Proceedings Establishing Majority Cloture for Supreme Court Nominations: In Brief, Congressional Research Service, April 14, 2017 (https://fas.org/sgp/crs/misc/R44819.pdf)).
[12] Technically, the Senate could consider as many as three budget reconciliation bills each year—one for spending, one for taxing and one for borrowing—but if there is even one tax provision in what is largely a spending reconciliation bill, then there cannot be a second tax reconciliation bill that year (see https://www.cbpp.org/research/federal-budget/introduction-to-budget-reconciliation).
[13] The 117th U.S. Congress could convene as early as January 3, 2021.
[14] However, the Economic Growth and Tax Relief Reconciliation Act of 2001 was enacted more quickly, with the reconciliation bill passed by Congress in late May 2001, signed into law early June 2001 (after former President George W. Bush first took office January 2001). For more examples of timing of reconciliation bills, see The Budget Reconciliation Process: Timing of Legislative Action, Congressional Research Service, Feb. 23, 2016 (https://www.everycrsreport.com/files/20160223_RL30458_f61b20bf20ed9faf2c480da0cf6de1eca0b4e8cd.pdf).
[15] “Statutes that reach back only a year or two generally do not raise serious constitutional concerns. Congress routinely passes tax laws that apply to the full calendar year in which they are enacted, and has at times passed tax laws applicable to an entire calendar year that ended before enactment. The courts have upheld those laws against due process challenges, expressing approval of statutes that establish ‘only a modest period of retroactivity . . . confined to short and limited periods required by the practicalities of producing national legislation.’ United States v. Carlton, 512 U.S. 26 (1994),” excerpted from Retroactive Legislation: A Primer for Congress published by the Congressional Research Service Aug. 15, 2019 and authored by Joanna R. Lampe, available at https://fas.org/sgp/crs/misc/IF11293.pdf.
16 For more on retroactive effective dates, see our memos “Handicapping Potential Effective Dates for Tax Reform Based on Historical Precedent” (Feb. 8, 2017) and “September 27 Effective Date Indicates Congress Is All-In on Immediate Expensing, Creates Possible Rate Arbitrage” (Sept. 28, 2017).
17 https://joebiden.com/wp-content/uploads/2020/08/UNITY-TASK-FORCE-RECOMMENDATIONS.pdf
18 Blue Dog Coalition, Our Vision for Tax Reform, Oct. 4, 2017 (https://bluedogcaucus-costa.house.gov/sites/bluedogcaucus.house.gov/files/documents/171004%20Blue%20Dog%20Vision%20for%20Tax%20Reform .pdf).
19 As we have previously explained (see “A Trader’s Guide to the Budget Process Necessary to Achieve Substantial Business Tax Cuts” (May 22, 2017)), the PAYGO law does not explicitly prevent a deficit-raising law from being enacted. It just looks at the deficit impacts both five years and 10 years out and requires future legislation within the same Congressional session to provide enough increased taxes or reduced spending to zero out any deficit increases at those two points.
20 Joe Biden Speaks in Dunmore, Pennsylvania, CSPAN, July 9, 2020 (https://www.c-span.org/video/?473701-1/joe-biden- introduces-economic-blueprint-revitalizing-us-economy&event=473701&playEvent); but note that the final 2020 Democratic Party Platform does not similarly indicate that the rate should go back up to 28% per se. It simply states that “[c]orporate tax rates, which were cut sharply by the 2017 Republican tax cut, must be raised. . .” (https://www.demconvention.com/wp- content/uploads/2020/08/2020-07-31-Democratic-Party-Platform-For-Distribution.pdf).
21 CNBC Transcript: Former Vice President Joe Biden Speaks With CNBC’s ‘Squawk Box’ Today, CNBC, May 22, 2020 (https://www.cnbc.com/2020/05/22/cnbc-transcript-former-vice-president-joe-biden-speaks-with-cnbcs-squawk-box- today.html).
22 Id—where Biden said “Let’s reverse the Trump Tax Cut. Imagine if we had that $2 trillion now, as we go into, God willing, a recovery, which is a long way away as I see it right now. Which they used to buy back hundreds of billions of dollars of stock, tens of billions of dollars. . . . Let’s use the money to invest in the middle class”; and see Damian J. Troise, US companies’ tax windfall fuels record share buybacks, Associated Press, April 4, 2019 (https://apnews.com/438fae12f9204b1fbd8e8b1985ae554f), which states that “U.S. corporations spent a record amount buying back their own shares last year, using 2017′s tax‐cut windfall to reward shareholders rather than to invest or expand their businesses. Companies in the S&P 500 spent $806 billion on stock buybacks in 2018, blowing away the previous record of nearly $590 billion set in 2007.”
23 Full transcript: Ninth Democratic debate in Las Vegas, NBC News, Feb. 19, 2020 (https://www.nbcnews.com/politics/2020- election/full-transcript-ninth-democratic-debate-las-vegas-n1139546).
24 https://www.cbo.gov/budget-options/2018/54810
25 Joe Biden’s Tax Plan Would Be a Boon to Beijing, May 26, 2020 (https://www.donaldjtrump.com/media/joe-bidens-tax-plan- would-be-a-boon-to-beijing/).
26 But see Biden adviser says tax hikes would depend on state of economy, where Toby Eckert reported “‘Whether Joe Biden would propose tax increases early in his administration if he’s elected is “going to be very dependent on economic conditions,’ one of his advisers said Thursday,” referring to adviser Jared Bernstein, in Politico Pro, Aug. 20, 2020 (subscription required).
27 https://www.thedailybeast.com/fox-news-anchor-gets-fact-checked-by-economist-austan-goolsbee-on-air-telling-her-to- check-the-numbers
28 See Richard Rubin, Does Amazon Really Pay No Taxes? Here’s the Complicated Answer, Wall St. J., June 14, 2019 (https://www.wsj.com/articles/does-amazon-really-pay-no-taxes-heres-the-complicated-answer-11560504602); Charles Duhigg and David Kocieniewski, How Apple Sidesteps Billions in Taxes, N.Y. Times, April 28, 2012 (https://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html); and David Kocieniewski, G.E.’s Strategies Let It Avoid Taxes Altogether, N.Y. Times, March 24, 2011 (https://www.nytimes.com/2011/03/25/business/economy/25tax.html).
29 Joe Biden Speaks in Dunmore, Pennsylvania, CSPAN, July 9, 2020 (https://www.c-span.org/video/?473701-1/joe-biden-introduces-economic-blueprint-revitalizing-us-economy&event=473701&playEvent).
[30] CNBC Transcript: Former Vice President Joe Biden Speaks With CNBC’s ‘Squawk Box’ Today, CNBC, May 22, 2020 (https://www.cnbc.com/2020/05/22/cnbc-transcript-former-vice-president-joe-biden-speaks-with-cnbcs-squawk-box- today.html).
[31] “The U.S. Tax Act enhanced and extended accelerated depreciation deductions by allowing full expensing of qualified property, primarily equipment, through 2022. As of December 31, 2019, we had approximately $1.7 billion of federal tax credits potentially available to offset future tax liabilities. Our federal tax credits are primarily related to the U.S. federal research and development credit,” according to Amazon’s Form 10-K filed Jan. 31, 2020 (https://www.sec.gov/ix?doc=/Archives/edgar/data/1018724/000101872420000004/amzn-20191231x10k.htm).
[32] Namely, bonus depreciation in IRC § 168(k), which is scheduled to be phased out beginning in 2023.
[33] Namely, the federal research and development tax credit in IRC § 41, the benefit of which is reduced starting in 2022.
[34] Previously, there were limits on a company’s ability to use tax credits to reduce its taxes—as the corporate AMT was designed to “prevent companies from eliminating their tax liability from over use of certain corporate tax preferences. For example, the AMT rules prevent companies from using most business tax credits, such as the research and experimentation credit, the work opportunity credit and the welfare-to-work credit, to offset AMT or to reduce regular tax below tentative minimum tax” (Curtis P. Carlson, The Corporate Alternative Minimum Tax Aggregate Historical Trends, Treasury’s Office of Tax Analysis, June 2005 (https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/WP-93.pdf)).
[35] Jennifer Epstein, Biden to Target Tax-Avoiding Companies Like Amazon With Minimum Federal Levy, Bloomberg, Dec. 4, 2020 (https://www.bloomberg.com/news/articles/2019-12-04/biden-to-target-tax-avoiding-companies-with-minimum-federal-levy).
[36] https://www.npr.org/2020/08/20/901380014/fact-check-bidens-address-to-the-dnc-annotated
[37] Richard Rubin, Biden Tax Plan Targets Profitable Companies That Pay Almost Nothing, Wall St. J., July 27, 2020 (https://www.wsj.com/articles/biden-tax-plan-targets-profitable-companies-that-pay-almost-nothing-11595848477); Jennifer Epstein, Biden to Target Tax-Avoiding Companies Like Amazon With Minimum Federal Levy, Bloomberg, Dec. 4, 2019 (https://www.bloomberg.com/news/articles/2019-12-04/biden-to-target-tax-avoiding-companies-with-minimum-federal-levy).
[38] According to a Zion Research Group estimate, as reported by Richard Rubin, Biden Tax Plan Targets Profitable Companies That Pay Almost Nothing, Wall St. J., July 27, 2020 (https://www.wsj.com/articles/biden-tax-plan-targets-profitable-companies- that-pay-almost-nothing-11595848477).
[39] Joe Biden Speaks in Dunmore, Pennsylvania, CSPAN, July 9, 2020 (https://www.c-span.org/video/?473701-1/joe-biden-introduces-economic-blueprint-revitalizing-us-economy&event=473701&playEvent).
[40] CARES Act § 4003.
[41] “‘I want money to be used for workers and keeping businesses open, not buybacks,’ the president said, adding that he is ‘strongly recommending a buyback exclusion,’” as reported by Ian Millhiser, The fight over stock buybacks and corporate coronavirus bailouts, briefly explained, Vox, March 21, 2020 (https://www.vox.com/2020/3/21/21189471/stock-buybacks- coronavirus-bailouts-airlines-trump).
[42] Jacob Pramuk, Joe Biden urges ‘every CEO in America’ to commit to no stock buybacks for a year, CNBC, March 20, 2020 (https://www.cnbc.com/2020/03/20/coronavirus-updates-joe-biden-urges-no-stock-buybacks-for-a-year.html).
[43] Jeff Stein, Democrats say corporate shareholders have pocketed nearly $100 billion from GOP tax law, Wash. Post, Feb. 7, 2018 (https://www.washingtonpost.com/news/wonk/wp/2018/02/07/democrats-say-corporate-shareholders-have-pocketed- nearly-100-billion-from-gop-tax-law/).
[44] Dylan Scott and Emily Stewart, Marco Rubio’s plan to fix the GOP tax cuts starts with stock buybacks, Vox, Feb. 20, 2019 (https://www.vox.com/policy-and-politics/2019/2/20/18225086/marco-rubio-stock-buybacks-tax-plan).
[45] Chuck Schumer and Bernie Sanders, Schumer and Sanders: Limit Corporate Stock Buybacks, N.Y. Times, Feb. 3, 2019 (https://www.nytimes.com/2019/02/03/opinion/chuck-schumer-bernie-sanders.html).
[46] The Democratic Party Platform, however, focuses only on stock buyback limits for corporations that receive government aid: “We will impose rigorous oversight on big corporations seeking financial assistance to weather the pandemic and President Trump’s recession, to ensure that federal dollars support keeping workers on payroll, not enriching CEOs or shareholders. Taxpayer money should not be used to pay out dividends, fund stock buybacks, or give raises to executives.”
[47] “White House counselor Kellyanne Conway argued that Biden’s ‘Made in America’ pitch to voters was an attempt to catch up on a winning issue. ‘I think he recognizes that buy American is very popular,’” reported Leandra Bernstein, Biden and Trump battle over ‘Made in America’ economic agenda, WJLA, July 10, 2020 (https://wjla.com/news/nation-world/biden-and-trump- battle-over-made-in-america-economic-agenda).
[48] https://joebiden.com/made-in-america/
[49] Joe Biden Speaks in Dunmore, Pennsylvania, CSPAN, July 9, 2020 (https://www.c-span.org/video/?473701-1/joe-biden- introduces-economic-blueprint-revitalizing-us-economy&event=473701&playEvent).
[50] The final 2020 Democratic Party Platform is not that specific. Instead, it simple said “[w]e will eliminate President Trump’s tax and trade policies that encourage big corporations to ship jobs overseas and evade paying their fair share of taxes” and “Democrats will take action to reverse the Trump Administration’s tax cuts benefiting the wealthiest Americans and rewarding corporations for shipping American jobs overseas. We will crack down on overseas tax havens and close loopholes that are exploited by the wealthiest Americans and biggest corporations.”
[51] Jennifer Epstein, Biden to Target Tax-Avoiding Companies Like Amazon With Minimum Federal Levy, Bloomberg, Dec. 4, 2019 (https://www.bloomberg.com/news/articles/2019-12-04/biden-to-target-tax-avoiding-companies-with-minimum-federal-levy).
[52] Joe Biden Speech Transcript Warren, Michigan September 9, Rev, Sept. 9, 2020 (https://www.rev.com/blog/transcripts/joe- biden-speech-transcript-warren-michigan-september-9).
[53] Jennifer Epstein, Biden Plan Sets Tax Penalties for Companies’ Offshore Profits, Bloomberg Daily Tax Report, Sept. 9, 2020 (https://news.bloomberglaw.com/daily-tax-report/biden-plan-sets-tax-penalties-for-companies-offshore-profits).
[54] Id.
[55] Mindy Herzfeld, 5G Tax Legislation: Democratic Proposals, Tax Notes Today Federal, Nov. 4, 2019 (subscription required).
[56] Alexis Gravely, Biden Takes Aim at Offshoring With Proposed Tax Hike, Tax Notes Today International, Sept. 10, 2020 (subscription required).
[57] Jesse Drucker and Jim Tankersley, How Big Companies Won New Tax Breaks From the Trump Administration, N.Y. Times, Dec. 30, 2019 (https://www.nytimes.com/2019/12/30/business/trump-tax-cuts-beat-gilti.html?searchResultPosition=2); and Kate Davidson and Richard Rubin, Treasury Eases Minimum-Tax Burdens on U.S. Multinationals, Wall St. J., Dec. 2, 2019 (https://www.wsj.com/articles/treasury-eases-minimum-tax-burdens-on-u-s-multinationals-11575324423).
[58] Recall that President Trump issued an executive order on April 21, 2017 calling for the Treasury Department to review all “significant tax regulations” issued on or after January 1, 2016 to identify those that impose undue financial burden or add undue complexity. This effort was separate from the Congressional Review Act authority.
[59] T.D. 9902.
[60] https://joebiden.com/made-in-america/
[61] https://joebiden.com/made-in-america/
[62] “[C]lose the loopholes that allow the super wealthy to avoid taxes on capital gains altogether,” is code for repealing stepped- up basis at death (IRC § 1014) (https://joebiden.com/healthcare/).
[63] In TCJA, Congress limited the tax benefits of so-called carried interest, which allows certain investment managers (among others) to arguably convert what some view as compensation in exchange for services that should be taxed at ordinary rates to investment income taxed at lower capital gains rates. As enacted by TCJA, IRC § 1061 effectively imposes a three-year holding period in order for partnership interests held in connection with the performance of services to obtain the preferential long- term capital gains treatment. Carried interest is also addressed in the final 2020 Democratic Party Platform, which states: “We will make sure investors pay the same tax rates as workers and bring an end to expensive and unproductive tax loopholes, including the carried interest loophole.” As Biden is also proposing to restore the 39.6% rate for taxpayers with incomes over $400,000, this proposal would effectively tax capital gains at the same rate as ordinary income for the wealthy.
[64] For example, the Tax Reform Act of 1986 repealed the exclusion of long-term capital gains for individuals, raising the maximum rate to 28%. The change was effective for taxable years beginning on or after January 1, 1987. The Tax Reform Act of 1976 lengthened the holding period defining long-term capital gains from 6 months to 9 months in 1977 and to one year in 1978 and subsequent years. The Tax Reform Act of 1969 gradually phased out the alternative capital gains rate (which was a reduced rate of 25%) for high-income taxpayers, increasing the rate for long-term capital gains above $50,000 to 29.5% in 1970, to 32.5% in 1971 and to 35% in 1972. The changes applied to taxable years beginning after December 31, 1969, but an exception was made for amounts received before 1975 under binding contracts in effect on October 9, 1969, installment payments received before 1975 pursuant to sales made before October 10, 1969, and distributions from corporations made prior to October 10, 1970, which were made pursuant to plans of complete liquidation adopted before October 10, 1969.
[65] Some are already advocating year-end planning in this area (see Stacy Francis, Op-ed: Here are some smart tax moves you will want to make in a Biden presidency, CNBC, Sept. 8, 2020 (https://www.cnbc.com/2020/09/08/op-ed-here-are-some-smart-tax- moves-to-make-in-a-biden-presidency.html)).
[66] https://joebiden.com/healthcare/
[67] “There does not seem to be any serious question as to whether such a period of retroactivity is constitutional,” according to Constitutionality of Retroactive Tax Legislation authored Oct. 25, 2012 by legislative attorneys at the Congressional Research Service, citing United States v. Darusmont, 449 U.S. 292 (1981), which upheld a provision that increased tax on the gain from a sale that occurred four months before the law’s enactment (https://www.everycrsreport.com/files/20121025_R42791_88056e21d9d5ad6acc83a1602c7cb983eb64884f.pdf).
[68] https://www.finance.senate.gov/imo/media/doc/Treat%20Wealth%20Like%20Wages%20RM%20Wyden.pdf
[69] Robert Frank, Tax hike on California millionaires would create 54% tax rate, CNBC, July 30, 2020 (https://www.cnbc.com/2020/07/30/tax-hike-on-california-millionaires-would-create-54percent-tax-rate.html)[70] https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB2088
[71] Brian Peccarelli, Record Stimulus and Social Unrest Create Perfect Storm for Wealth Tax, Forbes, Sept. 8, 2020 (https://www.forbes.com/sites/brianpeccarelli/2020/09/08/record-stimulus-and-social-unrest-create-perfect-storm-for- wealth-tax).
[72] John Ricco, Alexander Arnon and Xiaoyue Sun, The Updated Biden Tax Plan: Budgetary, Distributional, and Economic Effects, Penn Wharton Budget Model, March 10, 2020 (https://budgetmodel.wharton.upenn.edu/issues/2020/3/10/the-biden-tax- plan-updated); Gordon B. Mermin, Surachai Khitatrakun, Chenxi Lu, Thornton Matheson, and Jeffrey Rohaly, An Analysis of Former Vice President Biden’s Tax Proposals, Tax Policy Center, March 5, 2020 (https://www.taxpolicycenter.org/publications/analysis-former-vice-president-bidens-tax-proposals/full).
[73] Lily Batchelder and David Kamin, Op-Ed: The GOP tax plan creates one of the largest new loopholes in decades, L.A. Times, Dec. 31, 2017 (https://www.latimes.com/opinion/op-ed/la-oe-batchelder-kamin-tax-deduction-pass-through-income- 20171231-story.html).
[74] Although the data is not broken out at the $400,000 mark, in 2018, 15.1 million taxpayers with adjusted gross income (AGI) less than $200,000 took $47.9 billion of deductions—an average of $3,136 each; 3.2 million taxpayers with AGI between $200,000 and $1 million took $49.3 billion of deductions—an average of $15,396 each; and 356,000 taxpayers with AGI greater than $1 million took $52.8 billion of deductions—an average of $157,257 each, according to Martin A. Sullivan, Economic Analysis: 19 Million Taxpayers Take the Passthrough Deduction, Tax Notes, Sept. 9, 2020 (subscription only).
[75] Richard Rubin, Biden Tax Plan Targets Profitable Companies That Pay Almost Nothing, Wall St. J., July 27, 2020 (https://www.wsj.com/articles/biden-tax-plan-targets-profitable-companies-that-pay-almost-nothing-11595848477).
[76] John Divine, What Happens to the Stock Market if Biden Wins?, U.S. News, Aug. 28, 2020 (https://money.usnews.com/investing/stock-market-news/articles/what-happens-to-the-stock-market-if-biden-wins).
[77] “Goldman’s researchers, led by David Kostin, expect Biden’s tax plan to reduce their S&P earnings estimates by 12%, from $170 per share to $150 per share. That estimate is based on several likely Biden policies including raising the statutory federal tax rate on domestic income by 7%, doubling the tax rate on certain foreign income, imposing a minimum tax rate of 15%, and creating an additional payroll tax on high earners,” as reported by Sarah Hansen, Biden’s Tax Plan Could Cut S&P 500 Earnings By 12%, Goldman Sachs Warns, Forbes, July 13, 2020 (https://www.forbes.com/sites/sarahhansen/2020/07/13/bidens-tax- plan-could-cut-sp-500-earnings-by-12-goldman-sachs-warns/#76c7c4a0236a).
[78] Katie Glueck and Lisa Friedman, Biden Announces $2 Trillion Climate Plan, N.Y. Times, July 14, 2020 (https://www.nytimes.com/2020/07/14/us/politics/biden-climate-plan.html).
[79] Among other proposals, Biden plans to enhance tax incentives for carbon capture, use, and storage and “will restore the full electric vehicle tax credit to incentivize the purchase of these vehicles” (https://joebiden.com/climate-plan/).
[80] In an article about Biden’s 15% corporate minimum tax on book income, Richard Rubin wrote that “budget estimators at the University of Pennsylvania’s Wharton School project that information-industry companies would pay 75% of the additional taxes,” Biden Tax Plan Targets Profitable Companies That Pay Almost Nothing, Wall St. J., July 27, 2020 (https://www.wsj.com/articles/biden-tax-plan-targets-profitable-companies-that-pay-almost-nothing-11595848477).
[81] While new tax credits may be offered to the pharmaceutical industry to get them to onshore supply chains, we expect that there will be a lot of pressure to reduce drug prices by referencing utilization of the R&D tax credit, as in the Democratic Party Platform (“especially when taxpayer money underwrites research leading to the development of many prescription drugs in the first place”). Further, the platform calls for the elimination of tax breaks for prescription drug advertisements. See also Anne Sraders, Which industries will thrive—or be in the crosshairs—in a Biden-Harris administration, according to analysts, Fortune, Aug. 13, 2020 (https://fortune.com/2020/08/13/joe-biden-kamala-harris-administration-business-industry/).
[82] According to An Analysis of Former Vice President Biden’s Tax Proposals, authored by Gordon B. Mermin, Surachai Khitatrakun, Chenxi Lu, Thornton Matheson, and Jeffrey Rohaly for the Tax Policy Center March 5, 2020, Biden’s tax proposals include eliminating “certain tax preferences for the real estate industry. We assume the proposal repeals • the exemption from passive loss rules for $25,000 of rental loss, • the accelerated depreciation of rental housing, and • the deferral of capital gains from like-kind exchanges.” The phase out of the QBI deduction for the wealthy would also likely impact many real estate firms.
[83] As part of his climate plan, Biden would end subsidies for fossil fuels (https://joebiden.com/climate-plan/).
[84] William M. VanDenburgh and Philip J. Harmelink, Implications of the 2020 Presidential Candidates’ Tax Positions, Tax Notes Today Federal, Aug. 10, 2020.
[85] “An outline released by his campaign last week lists a ‘Made in America’ tax credit and tax credits for companies that bring back jobs from China. It also cites 100% expensing deductions for industries like pharmaceuticals and robotics that bring manufacturing back to the U.S.,” as reported by Paul Davidson, Trump, Biden tout contrasting economic plans. Which will restore jobs lost in the pandemic faster?, USA Today, Aug. 31, 2020 (https://www.usatoday.com/story/money/2020/08/31/trump-biden-who-has-better-plan-recover-jobs-destroyed-covid- 19/5667337002/).
[86] “[B]onus depreciation . . . may be on the chopping block . . . The campaign, for example, hasn’t directly addressed the issue of bonus depreciation, but has stated that large swaths of the TCJA would be on the chopping block,” Joshua Rosenberg, Biden Win Could Spur Flurry Of Corp. Sales And Recognitions, Law360, Aug. 5, 2020 (https://www.law360.com/articles/1298768/biden-win-could-spur-flurry-of-corp-sales-and-recognitions); and see Goolsbee writing in the N.Y. Times Aug. 1, 2019, that “the 2017 corporate tax cut has had such an underwhelming impact on companies’ capital investment” (Why Rate Cuts Don’t Help Much Anymore, https://www.nytimes.com/2019/08/01/business/federal- reserve-rate-cut.html).
[87] “Biden recently ‘has suggested the overlapping [health and economic] crises demand that the government respond the way it did during the Depression and World War II,’” as reported by Tory Newmyer, The Finance 202: Biden presiding over family fight over how much should be spent to resurrect economy, Wash. Post, Aug. 21, 2020 (https://www.washingtonpost.com/politics/2020/08/21/finance-202-biden-presiding-over-family-fight-over-how-much-should- be-spent-resurrect- economy/?utm_campaign=wp_the_finance_202&utm_medium=email&utm_source=newsletter&wpisrc=nl_finance202).
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