Biden’s tax overhaul

President Joe Biden’s plan to revamp U.S. infrastructure and expand the social safety net would raise federal spending to its highest level in modern history. Democrats want to pay for the $4 trillion package over the next 10 years by hiking taxes on the ultra-wealthy and corporations. Republicans say any tax increase is a “red line” they will not cross. Here is what the plan, which Congress must approve, currently includes:

$4 trillion in spending

The plan calls for spending $2.3 trillion on infrastructure and jobs and another $1.8 trillion on families and education.

To Republicans, infrastructure means roads, bridges and construction projects. But Democrats want to expand the definition to include broadband internet for farmers, electric vehicles and cleaning up pollution in low-income neighborhoods.

There is even less Republican support for the trillions of dollars Democrats want to spend on families to reduce child poverty and help adults find jobs in a changing economy.

A plan to pay for the plan

Taxing the top 1%

Biden’s proposal comes at a time when corporations and the richest individuals pay less than at almost any other time in modern history.

Biden proposes to raise income tax rates for the top 1% of earners, those making over $500,000 a year. The top rate would rise to 39.6%, undoing a cut to 37% approved under the Trump administration.

The wealthy would not pay the top rate on all their income. The federal government divides taxable incomes into brackets and taxes each chunk of income at separate rates:

While raising rates on higher earners would help reduce U.S. income inequality, it would not directly address the increasing concentration of wealth in the hands of a relatively few Americans. It also does not address another core issue for Democrats: whether corporations are paying their fair share of taxes and the practice of booking profits in lower-tax countries. Other proposals tackle those issues.

Higher corporate taxes

The share of revenue that the federal government gets from corporate taxes has fallen to historic lows, particularly after the Trump tax cuts. The Biden administration wants to not only raise the corporate tax rate, but also establish a minimum global corporate tax rate to close offshore tax loopholes.

The Biden administration has demonstrated flexibility in an effort to reach across the aisle. On Thursday June 3, Biden floated a 15% minimum tax for corporations in an effort to recruit Republicans skeptical of the proposed 28% corporate tax rate.

A historically high capital gains tax rate

The Biden administration is also proposing to roughly double the tax rate on capital gains. Capital gains taxes are triggered when the owner of an asset, be it a stock or a piece of real estate, decides to sell. Tax is paid on any “gain” or profit, subject to some popular exclusions like part of the profit from selling a primary residence. The proposal is among several ideas that could slow the concentration of wealth in the United States. The proposal would bring capital gains taxes to their highest level in modern times and well above the 35% peak of the 1970s.

How U.S. taxes compare to other countries

The top U.S. marginal income tax rate is not on the low end of the range of industrialized countries, but it is lower than in many of them, particularly those in Europe.