Last night, President Joe Biden delivered his second State of the Union Address. In his speech, he renewed the push for several of his unfinished legislative tax priorities, such as raising taxes on very high-income households and increasing benefits for families with children.

1. Enact a Minimum Tax on Billionaires

President Biden’s “minimum tax on billionaires,” originally introduced in the administration’s Fiscal Year 2023 budget, would require taxpayers with a net worth of $100 million or more to pay a top-up tax if their effective tax rate on “total income” is under 20 percent. “Total income” would include taxable income plus unrealized capital gains, and the top up tax would be payable over five years, with special rules to value assets with no obvious market price.

The goal of this policy is to raise revenue from very high net worth households and reduce the value of deferral—the ability to delay the tax on unrealized capital gains. The administration believes this policy would raise $360 billion over ten years. However, most of the revenue would come from the one-time tax on unrealized appreciation of currently held assets and would raise much less over the long run. In addition, this policy faces potential legal and administrative challenges.

2. Raise the Excise Tax on Stock Buybacks

The second tax increase mentioned last night was a quadrupling of the 1 percent excise tax on stock buybacks. Some proponents, such as the President, argue that the tax would increase corporate investment by reducing buybacks, but this is a misunderstanding of how investment decisions are made. The tax would raise the cost of capital and decrease investment in the United States. Additionally, it is likely to shrink the tax advantage of stock buybacks over dividends, leading to reduced use of buybacks and increased use of dividends.

3. Expanded Child Tax Credit

President Biden also called for a revival of the expanded Child Tax Credit, which was passed in  2021 as part of the American Rescue Plan Act (ARPA). ARPA temporarily expanded the credit from $2,000 to $3,000 ($3,600 for children under 5) for households earning less than $75,000 ($150,000 for married couples filing jointly). The credit was also made fully refundable, and the earned income phase-in was eliminated, meaning households with no earned income could receive the full credit.

Proponents of the policy highlight its impact on poverty. However, it faces significant political challenges. Lawmakers failed to include a temporary extension in the Inflation Reduction Act, as Republicans and a handful of Democrats were concerned about its budgetary impact and its effect on work incentives.

4. The $400,000 Pledge

Finally, President Biden reaffirmed his pledge not to raise taxes on most households, stating that “nobody earning less than $400,000 a year will pay an additional penny in taxes.” While this pledge may be politically advantageous, it resulted in many of the suboptimal design choices in the House-passed Build Back Better Act and precluded other reasonable tax reforms. Additionally, it was completely disregarded in several important cases, such as taxes on businesses and excise taxes.

5. What about the Global Minimum Tax?

President Biden did not have enough time to run through every tax policy his administration will pursue, but there was at least one notable omission: the global minimum tax. (He did briefly mention the 15 percent book minimum tax, which is a different policy).

For the past few years, the Biden Administration had been negotiating and advocating for a global tax deal that would enact a 15 percent global minimum tax on multinational corporations. The US version of the minimum tax was included in the House-passed version of the Build Back Better Act, but the tax changes were ultimately excluded from the Inflation Reduction Act.

Given the emphasis the administration has placed on the global minimum tax these past couple of years, it would be surprising if they dropped it as a priority.

6. Looking Forward

President Biden’s address indicates that his administration will continue to push most of the same tax policies he has been advocating since he was elected, but he has little chance of signing them into law, given the divided control of Congress.

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