White House sends mixed message on higher taxes

The White House has sent mixed signals over its plans to raise taxes on the wealthy to pay for some of its policies, providing a lack of clarity about how President Biden’s $400,000 threshold for tax increases would work.

The absence of details comes as Democrats are already debating privately how to pay for their programs, an issue when it comes to taxes that splits the party not only on philosophic lines but also on regional ones.

Most Democrats support the idea of raising taxes on the wealthy and corporations, but Democrats representing suburban areas with high costs of living are sensitive about what’s judged middle class and upper middle class and how tax hikes would affect their communities. And conservatives have already started to argue that Biden is seeking to violate his pledge to raise taxes on only the wealthiest Americans.

Biden has used varying language when referring to the income level above which he’d raise taxes, not always being clear about whether he’s targeting individuals making more than $400,000 or also households with couples making a combined $400,000.

On many occasions, Biden has suggested that he won’t raise taxes on any person making under $400,000, but at other times, he has said that there won’t be tax increases for families making under that level.

When Biden first made his pledge, on CNBC in May 2020 while he was running for president, he said, “Nobody making under 400,000 bucks would have their taxes raised. Period. Bingo.”

In remarks earlier this month after the Labor Department released unemployment data, Biden said his infrastructure plan “won’t raise a penny tax on a family making less than $400,000 a year.” 

Then during remarks Wednesday about his infrastructure package, Biden said, “I will not impose any tax increases on people making less than $400,000 a year.”

Biden offered a series of proposals aimed at raising taxes on high earners during his presidential campaign but has not detailed proposals on tax increases for individuals since taking office. Much of the focus of the debate among lawmakers on taxes currently relates to Biden’s proposal to raise the corporate tax rate from 21 percent to 28 percent.

However, Biden is expected to release a proposal in the future focused on health care and child care, and that bill is expected to be paid for through tax increases on high-income individuals. 

How those tax increases are structured would impact who might be affected. If the tax increases apply to married couples filing joint returns with income above $400,000, there could be some people whose individual income is under $400,000 but who would see a tax increase because their combined income with their spouse is above that threshold.

During a press briefing last month, White House Press Secretary Jen Psaki said that both individual tax filers making under $400,000 and families making under $400,000 would not see their taxes go up. But she also said that the administration would have more to say when it releases proposals about tax increases for high earners.

“This is a commitment he made on the campaign trail, which he has committed to abiding by,” she said. “But once we propose a tax proposal, we’ll have more to discuss on it.” 

Think tanks that analyzed Biden’s campaign tax proposals applied the $400,000 threshold to both single filers and married couples. Eric Toder, co-director of the Urban-Brookings Tax Policy Center, said that Biden’s campaign didn’t object to that assumption, but that doesn’t mean that is what the administration will ultimately propose.

The use of a $400,000 threshold for married couples could become a Republican attack line against Democrats as Biden seeks to enact his agenda. 

The right-leaning editorial board of The Wall Street Journal wrote last month that Biden is “obfuscating who will pay” his planned tax increases on high earners because he frequently suggests that no one making under $400,000 will see a tax increase, while Psaki has said the threshold would apply to families.

“If you’re a two-income household making $200,000 each, you could get whacked,” the editorial board wrote.

“This is a familiar tax bait and switch. Democrats promise they’ll tax only the rich, but there aren’t enough rich, and the rich don’t have enough money to finance the Democratic Party’s endless spending schemes,” the editorial board added. “Millions of the Americans Mr. Biden wants to tax aren’t rich. They are successful Americans, typically at the peak of their earning lives, who might make $200,000 for a few years.”

Americans for Tax Reform President Grover Norquist argued that Biden’s proposal to raise the corporate income tax rate could hurt people making under $400,000 because the rate increase could impact the value of people’s 401(k) retirement accounts.

“Biden is going right for the middle class, right for the upper middle class, and that $400,000 is a dead letter and never meant anything and certainly doesn’t mean anything now,” Norquist said Friday at a virtual event hosted by The Washington Post.

Norquist said in an interview with The Hill following the Post’s event that it could hurt Democrats politically if people in high-income areas with high costs of living see tax increases that they did not expect.

“This is what loses Democrats the suburbs,” he said.

But Democrats said they did not expect there to be much political backlash if Biden raised taxes on both individuals and married couples making above $400,000, noting that there are few couples making above that amount.

Democratic strategist Brad Bannon said that he thinks it would be difficult for Republicans to argue that couples with income above $400,000 are middle class.

“The Biden tax policy is on pretty solid ground,” he said.

Bannon added that if Republicans suggest a couple making more than $400,000 is not well off financially, it would not be endearing to working-class voters.

Opposing tax increases on high earners “puts Republicans in a bad place politically,” he said.

According to a report released Thursday by the left-leaning Institute on Taxation and Economic Policy (ITEP), the personal income tax increases in Biden’s campaign plan would impact only 1.9 percent of taxpayers for the 2022 tax year. That analysis was conducted assuming that tax increases applied to both single filers and married couples with income above $400,000.

“I think married couples think of their income as their combined income,” said Steve Wamhoff, director of federal tax policy at ITEP.