Biden is right that we need to raise taxes

🌈 Abstract

The article discusses Biden's tax plan for 2025, analyzing its strengths, weaknesses, and potential issues. It covers the need to raise taxes in the U.S. due to large deficits and higher interest rates, and examines the specific proposals in Biden's plan, including raising capital gains taxes, eliminating the "step-up basis" loophole, and taxing unrealized capital gains.

🙋 Q&A

[01] Why we need to raise taxes (and cut spending)

1. What are the key reasons the article gives for needing to raise taxes and cut spending?

• The U.S. government is running a large fiscal deficit, which doesn't align with standard Keynesian macroeconomic principles of deficit reduction during strong economic times.
• Inflation is still above target, and fiscal deficits may be contributing to inflation.
• Interest rates are fairly high, so borrowing increases interest costs significantly, which could crowd out other parts of the budget.
• To avoid the possibility of a default premium on government bonds or hyperinflation, the U.S. government needs to get deficit spending under control.

2. What are the two main options the article identifies for reducing the deficit?

1. Cut government spending
2. Raise taxes

3. What does the article say about the historical levels of taxes and spending, and what does it suggest should be done?

• Spending is currently higher than it has been in recent history, except during the Great Recession.
• Taxes are lower than they were under Reagan, Clinton, and Bush.
• The article suggests that a compromise approach of both spending cuts and tax increases, similar to what was done in the 1990s, would be appropriate.

[02] Capital gains taxes, estate taxes, and accrual taxes

1. What are the three tax hike ideas in Biden's plan that the article discusses?

1. Raise capital gains tax rates to the same rate as the tax rate on other kinds of income.
2. Eliminate the "step-up basis" that allows people to dodge capital gains taxes when inheriting assets.
3. Create a 25% minimum income tax for the wealthy that includes unrealized capital gains as income.

2. What is the author's view on these three proposals?

• The first two proposals (raising capital gains taxes and eliminating the step-up basis) are good ideas.
• The third proposal (taxing unrealized capital gains) is problematic and should be dropped.

3. What are the key considerations the article discusses when evaluating different tax options?

• Fairness - who should be paying taxes
• Impact on economic behavior and distortions
• Revenue potential

4. Why does the article say capital gains taxes are a relatively good way to raise revenue?

• They affect rich people more, as they own a disproportionate share of assets.
• They don't seem to distort economic behavior very much.
• They can raise significant revenue, as people are unlikely to take their money out of the market in the long term.

5. What is the author's view on Biden's proposal to eliminate the "step-up basis" loophole?

• The author sees this as an obviously good idea, as it closes a major loophole that allows wealthy people to avoid paying capital gains taxes on inherited assets.

6. Why does the author think Biden's proposal to tax unrealized capital gains is problematic?

• It could seriously hurt startup formation, as founders and early investors would have to sell some of their holdings each year to pay the taxes, even if they haven't realized the gains.
• A less disruptive alternative would be to simply charge interest on past capital gains when the assets are eventually sold.

[03] We don't need to throw more money at overpriced services

1. What are the two ways the article says Biden's plan proposes to use the revenue from higher taxes?

1. Restoring the expanded Child Tax Credit from the American Rescue Plan
2. Making permanent the Inflation Reduction Act's tax credit for health insurance premiums

2. What is the author's view on these spending proposals?

• The expanded Child Tax Credit is a good idea, as it's a form of unconditional cash transfer that can function like a universal basic income.
• However, the author questions whether this can be afforded given higher interest rates, deficits, and other spending priorities.
• The health insurance premium tax credits are seen as misguided, as they will likely just drive up healthcare prices further.

3. Why does the author think healthcare subsidies are problematic?

• Healthcare is already an overpriced industry, with prices growing much faster than median incomes.
• Subsidizing healthcare demand will just cause prices to rise further, perpetuating a cycle of "cost disease socialism".

[04] Racial justice rhetoric is probably not the best justification here

1. What is the author's view on the rhetorical justification used in Biden's tax plan?

• The plan frames the proposals entirely in terms of reducing racial wealth gaps, which the author believes is not the best justification.
• Racial wealth gaps are an important issue, but the author thinks there are many other good reasons to raise taxes (e.g. deficit reduction, child poverty reduction) that should also be emphasized.
• The author believes the racial justice rhetoric alone will make the plan less politically palatable and harder to pass.

2. What does the author suggest would be a better approach?

• The author recommends citing a broader set of reasons for the tax increases, beyond just racial wealth gaps.
• This could include the need to reduce the deficit, fund industrial policy and national security priorities, and address issues like child poverty that affect all demographics.