When Joe Biden was inaugurated as President, America was in disarray, and its global leadership in question. The previous administration’s chaotic response to the COVID-19 pandemic had exposed a vulnerability unknown to the world’s image of efficiency that always branded the United States system of government. The post-election insurrection of January 6th, promoted by former President Trump and his far right acolytes, shocked every leader in the world; while salivating tyrants, dictators and leaders hostile to the very values of democracy, rule of law, and justice that the United States has always represented and advocated.
One hundred days after the above described situation, the Biden-Harris administration has brought America back to the front and center of global leadership, precisely by proving the efficient and amazing combination of compassionate leadership, political will, science, healthcare assets, and logistics to bring about the most impressive vaccination campaign the world has seen in response to the coronavirus. Cognizant that the pandemic had unprecedented economic implications and made the inequities of the country’s landscape surface, President Biden used his political majority in Congress to pass the America Rescue Plan, which has provided 1.9 trillion dollars in economic relief to unemployed, working class families and small businesses, together with well-designed economic stimulus measures to ensure that the U.S economy could quickly recover, as it has, 1.3 million lost jobs (of which many more are still needed to recover), and position itself for an unprecedented projected annualized economic growth of 6.4% of GDP, the largest increase in economic activity for decades. Friends from all over the world have called, and said in different words of admiration: “America is definitely back.”
President Biden spoke this week to a joint session of Congress to outline, beyond the phenomenal first 100 days’ accomplishments, his bold vision and agenda for the immediate future. In a speech—that CBS polling already situated in the 80% approval rate from those watching—Joe Biden was in his zone, and with much game delivered and proposed, in probably one of his best speaking performances in years, the most transformational and consequential socioeconomic agenda the United States of America has pursued since Franklin Delano Roosevelt. Two comprehensive pieces of legislation were prioritized by the President: the America Jobs Plan, a 2.3 trillion dollar hard and soft (or social) infrastructure investment for the next eight years that will recover and update roads, bridges, airports, and ports as well as railways. But the infrastructure plan will also eliminate lead pipes in all communities in America to bring clean water to every household or school, improve the electric grid, and build electric vehicle charging stations in the whole geography of the country, to position the United States into the green economy and redress the negative consequences of climate change. Much beyond traditional infrastructure, the Biden-Harris administration is looking to expand broadband internet access to every corner of the country, improve the healthcare system, and guarantee the services to care for the elderly and other vulnerable populations, which is known as “soft or social infrastructure.”
The other piece of legislation uplifted by the President is the American Families Plan, which introduces 1.8 trillion long term investments to, among other essential things, expand universal education to include fiscally supported free pre-k education, and two years of free higher education in Community Colleges.
The President made clear that this is fiscally sustainable, and it is. Responding in advance to conservatives, from those who will go denouncing a “socialist agenda” when it’s really a people’s agenda, to those speaking about debt and deficits, Biden cleverly said “trickle-down economics have never worked” and it’s time to grow our economy “from the bottom-up, and the middle out.” The trillions of dollars needed for this multi-year plan will be funded by introducing fairness in our tax system. Those of us who work closely connected to the complexities of taxation and public finance, as well as the wealthiest compassionate voices of people like Warren Buffet, know this call for taxation fairness is factual.
One thing is clear from the onset: Biden’s tax plan will not raise taxes to anyone making less that 400 thousand dollars per year, and will expand a tax break to those families taxed into poverty. Among the several loopholes to be closed and fixed in our corporate tax system, as proposed by President Biden, three reforms stand out: first, reverting the unneeded tax cuts of Donald Trump to the wealthiest and bigger corporations to the level we have had before, without a negative impact on economic growth and private investments. On the other hand, tax fairness will be brought back to the law by changing the way capital gains are currently taxed. Capital gains in the stock markets have been taxed at half the nominal tax applicable to ordinary income, which in addition to tax revenue erosion, creates a system in which speculation in Wall Street markets is privileged over new investments, operational expansion, and hard earned income, from businesses or individuals. In fact, many wealthy investors today have every incentive to pull out surpluses (or stay away) from ordinary business income, and move into the world of the stock exchanges, instead of, in many instances, investing or reinvesting in (and expanding) the ordinary business activities that originated such cash or wealth, together with creating more employment and opportunities. The other tax fairness reform proposed by the President is changing the code provisions that create the stepped-up tax basis applicable to intergenerational transfers, through trust funds used by the wealthiest Americans. What happens is that wealth represented in stocks or other assets is passed from one generation to the other, and in each moment of the intergenerational transfer of ownership in succession, the beneficiaries get the benefit of valuing their stocks and assets at the prevailing market value (defined as stepped-up tax basis), instead of the cost actually paid by the original investor (known as “transferred tax basis”). If stocks are sold the gain is minimal (in addition to taxed by preferential reduced rates); or with sophisticated planning, beneficiaries can cash out the unrealized gains through loans to be serviced by dividend income (also taxed at reduced rates) passing massive wealth over years with minimal tax implications.
Finally, many conservative pundits will say that raising taxes (which is actually about reverting the unfair Trump tax cuts) could put America at a disadvantage with other countries with lower nominal tax burden. Those who say that forget that in some of those countries you also have Value Added Tax, in addition to Corporate Income Tax. But most importantly, when looking at the tax burden you must dive into the effective not the nominal tax rate paid by different sectors of the economy. All research shows that the effective tax rates paid by big corporations, in all sectors, as well as the wealthiest individuals in America, are below 10% and in some cases as low as 5% or less, which makes the United States the developed country with the lowest tax burden in the world. Therefore, there is significant room for tax fairness to fund public investments that at the end will create wealth with equity for all Americans. Sound estimations indicate that the eight-year transformative investments proposed by President Biden can be funded with his tax reform, and in addition, these investments will foster higher economic growth, expand the tax base, and empower the middle class and small businesses, as well as bring America to the forefront of innovation in the transitional economy to clean energy.
As an immigrant who comes from Latin America, where inequality and inequities in the economy have regularly promoted destructive populism or socialist regimes, it is clear that the best path is to embrace a vision like the one presented by President Biden, which at the end strengthens democracy, and ensures that people continue to believe in the promise of upward mobility made by capitalism and the market economy, because the system provides opportunities rewarding hard work, not just wealth.
Photo: POTUS/Twitter