US president Joe Biden proposed a tax raise for the richest percentile. To get it, however, it must pass through Congress.
US president Joe Biden unveiled his plan for the 2023 fiscal budget, which includes two major tax hikes for the American super-wealthy. In particular, minimum tax for the last bracket would jump from 20% to 25%, according to the new plan.
Furthermore, capital gains tax would almost double, jumping from the current 20% to 39.6%. Capital gains taxes are applied on share sales: the cash inflow generated whenever a share is sold. Shares are the biggest source of revenue for the super-wealthy, the reason why their net worth is often so volatile.
Joe Biden will propose the full plan on Thursday, but will have to pass it through two chambers of Congress before it is approved. Last year, Biden already tried to pass a similar bill but failed.
In February, Joe Biden already hinted at this proposal during the State of the Union. He addressed Congress by asking them to support tax hikes on the wealthy: “reward work, not just wealth”, he said.
This year the success of the bill is pretty much out of the question, with the House of Representative controlled by the Republican party. Kevin McCarthy, House Speaker and member of the Republicans, already ruled out any tax hikes.
The debt ceiling
This tax hike proposal comes amid fierce discussion over the US debt ceiling. The United States can make debt only with the approval of Congress: if the nation borrows anything above that ceiling, it goes into default.
Currently, the debt ceiling of the United States is a whopping $31 trillion, almost a third more than the entire American GDP.
The United States can afford this level of debt because the Dollar is the most powerful currency in the world and they are the global economic hegemon. Furthermore, they borrow money to make internal investment, which raises GDP and makes such investment worth it.
However, whenever the debt ceiling is reached, whichever party is not ruling threatens to bring the country into default. By raising the debt ceiling, the United States would be able to keep borrowing money and continue the cycle.
Obviously, neither the Republican nor the Democratic party really wants to bring the United States into default. However, the Republicans can threaten to do so in exchange for important political concessions.
Therefore, Biden’s proposal for tax hikes will probably never see the day of light. It was already unlikely with a Democratic controlled house and without the standoff over the debt ceiling.
