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Why does the Biden administration want to raise the taxes of the wealthiest Americans?

byCaleb Moll
May 28, 2021
in WORLD
Why does the Biden administration want to raise the taxes of the wealthiest Americans?

Source: Tom Brenner, Reuters

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Biden’s American Families Plan seeks to raise the taxes of households earning more than US$400,000 a year, or what is often considered “the 1%.”

  • President Joe Biden’s administration has made it clear that it is looking to crack down on the different ways the wealthiest Americans avoid paying taxes in the United States. 
  • Earlier this year, researchers revealed that the top 1% of households do not report 21% of their income. Federal audits fail to detect around 6% of this unreported income, which is primarily a result of “sophisticated evasion” strategies on the part of the top 1%.
  • Some of these “evasion” strategies include utilizing private businesses and offshore accounts so as to hide income from the government.

So who exactly are “the wealthiest Americans”?

  • Biden’s American Families Plan seeks to raise the taxes of households earning more than US$400,000 a year, or what is often considered “the 1%.”
  • The 1% is a common term that refers to the wealthiest individuals in America who make up only 1% of the population.
  • It’s important to state that an individual earning US$400,000 doesn’t actually qualify as being in the top 1%. In reality, an individual would have to make around US$540,000 to be among the top 1%.
  • In 2020, data from the US Federal Reserve showed that the top 1% of the population had a combined wealth of US$34.2 trillion which is almost the same amount as the bottom 90% of the US population at 34.5 trillion.
  • That means that around 3.3 million people have as much money as about 297 million people. But the problem being discussed isn’t the extreme wealth gap between 90% of US citizens and the top 1%, but the fact that many in the top 1% avoid paying their fair share of taxes. 

Why are taxes so complicated in the US?

  • Mainly because the country was largely founded and established on anti-tax principles. The American colonies were originally controlled by Britain. America’s war for independence in the late 18th century primarily started because Britain was heavily taxing Americans even though Americans were not allowed to have a representative in the British parliament. 
  • This is where the phrase “no taxation without representation” comes from – Americans were upset that they were being taxed without being able to have someone representing them in government. 
  • This anti-tax sentiment carried on even after the British left. In fact, Americans – who currently pay both local and national taxes – didn’t have to pay national taxes until 1913. 
  • Americans, who have a national holiday for paying taxes called Tax Day, have an unnecessarily complicated system for doing taxes. However, this complexity is intentional.
  • Anti-tax activist groups and individuals like Grover Norquist want American taxes to be complicated so that more Americans will be “anti-tax” while tax companies such as H&R Block stand to profit from keeping taxes complicated. 

What’s the current plan to stop tax avoidance? 

  • Tax avoidance uses legal loopholes that allow businesses and individuals to avoid paying taxes by taking advantage of America’s complicated tax laws. 
  • A recent report by the US Treasury Department revealed that creating better ways to tax the rich would raise US$700 billion over the next decade.
  • Most of this money comes from tightening and refining America’s complicated tax laws so that the wealthiest Americans cannot avoid paying their taxes. 
  • One of the biggest problems that is currently being addressed by the Biden administration is the underfunding of the Internal Revenue Service (IRS). One of Biden’s stated goals is to provide over US$80 billion in funding for the IRS over the next decade in order to hire more specialized agents.
  • “Since 2010, we have lost 15,000 enforcement personnel,” IRS Commissioner Charles Rettig said in March. “It is not just a body count of how many people we have in enforcement. We need specialized agents.”

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