By Kyle Pomerleau

President Joe Biden campaigned on a tax plan that would have raised nearly $4 trillion in additional revenue over 10 years primarily from high-income households and corporations. The plan would have also expanded tax credits for families, workers, housing, higher education, and green energy. One year into his administration, Joe Biden has signed several temporary tax credit expansions into law, but the future of these policies is uncertain. There is also still a chance that some tax increases on high-income households and corporations and other tax credits will be signed into law, but it’s clear that anything passed in Congress will be scaled back from the president’s campaign proposals.

In 2021, President Biden signed two major pieces of
legislation into law: the American Rescue Plan Act (ARPA) and the
Infrastructure Investment and Jobs Act. Only the former, ARPA, included meaningful
changes to tax policy.

ARPA continued the Trump administration’s practice of using the tax code to provide relief from the COVID-19 pandemic. ARPA’s single largest tax provision was a third round of economic impact payments (EIPs). The ARPA EIP provided $1,400 per person, “topping off” the $600 per person EIP passed as part of the Trump administration’s COVID-related Tax Relief Act of 2020. ARPA also temporarily extended tax credits for paid sick leave and the employee retention credit and cut taxes on unemployment insurance benefits for 2020.

ARPA also included significant but temporary tax credit expansions. The largest of these provisions was the one-year expansion of the child tax credit. ARPA increased the size of the credit, expanded the credit to low- and no-income households, and distributed the credit monthly. In addition, ARPA included temporary expansions of Affordable Care Act health insurance subsidies, the earned income tax credit for childless filers, and the child and dependent care tax credit.

The house-passed version of the Build Back Better (BBB) Act included one-year extensions of these credits and a host of green energy credits and climate tax provisions. However, Sen. Joe Manchin (D-WV) expressed several concerns with the design of the BBB Act and the expanded child tax credit in particular. He was worried that the one-year extension of these credits is a budget gimmick designed to mask their long-term costs. He also does not support providing the child tax credit to households with no earnings.

After negotiations on the full package broke down, President Biden indicated his willingness to break the BBB Act into smaller pieces, but it remains unclear whether these credits will be included in future legislation. However, the breakup of the BBB Act could be good news for the green energy and climate tax provisions. The more than $300 billion in proposed green energy and climate tax provisions seem less controversial in the Senate.

It is also unlikely that Biden will be able to pass most of the $2 trillion in individual income tax increases proposed in his campaign plan. These proposals included raising the top individual income tax rate, phasing out Section 199A for high-income households, raising the tax burden on capital gains and dividends, and limiting the tax value of itemized deductions. Objections from Congress have taken most of these tax increases off the table. Instead, the House version of the BBB Act included a surtax on very high-income households, reforms to the net investment income tax, a limitation on business losses (extending a provision passed in ARPA), and changes to the tax treatment of retirement savings.

Biden may still have some success with his corporate tax proposals. His campaign tax plan proposed raising about $2 trillion over the next decade and included raising the corporate income tax rate from 21 percent to 28 percent, a new 15 percent minimum tax on book income, and reforms to the taxation of multinational corporations. Except for the 28 percent corporate tax rate, many of his proposals were included in the House version of the BBB Act — although modified from the campaign proposal. The BBB Act also included a 1 percent excise tax on stock buybacks.

According to the Joint Committee on Taxation (JCT), the individual income and retirement-related tax increases on high-income households would raise $650 billion over 10 years and the corporate provisions would raise an additional $813 billion. Including miscellaneous provisions, the House version of the BBB Act contained $1.47 trillion in additional revenue — a far smaller tax increase than Biden initially campaigned on.

President Biden’s tax policy accomplishments over the last year may not be as impressive as his supporters had hoped. That said, negotiations on additional legislation continue. It is likely, however, that any tax legislation making it to the president’s desk will fall short of the plan he campaigned on.

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