Joe Biden eyes first major federal tax hike since 1993 to fund growth plan

President Joe Biden is planning the first major federal tax hike since 1993 to help pay for the long-term economic programme designed as a follow-up to his pandemic-relief bill, according to people familiar with the matter.

Unlike the $1.9 trillion Covid-19 stimulus act, the next initiative, which is expected to be even bigger, won’t rely just on government debt as a funding source. While it’s been increasingly clear that tax hikes will be a component — Treasury Secretary Janet Yellen has said at least part of the next bill will have to be paid for, and pointed to higher rates —key advisers are now making preparations for a package of measures.

With each tax break and credit having its own lobbying constituency to back it, tinkering with rates is fraught with political risk. That helps explain why tax hikes since Bill Clinton’s signature 1993 overhaul stands out from the modest modifications done since.

For the Biden administration, the planned changes are an opportunity not just to fund key initiatives like infrastructure, climate and expanded help for poorer Americans, but also to address what Democrats argue are inequities in the tax system itself. The plan will test both Biden’s capacity to woo Republicans and Democrats’ ability to remain unified.

“His whole outlook has always been that Americans believe tax policy needs to be fair, and he has viewed all of his policy options through that lens,” said Sarah Bianchi, head of US public policy at Evercore ISI and a former economic aide to Biden.

While the White House has rejected an outright wealth tax, as proposed by progressive Democratic Senator Elizabeth Warren, the administration’s current thinking does target the wealthy.