Democratic tax plan is a reckoning for the left

So much for the progressive dream of turning America into a Scandinavian-style social democracy

President Biden and AOC.
(Image credit: Illustrated | Getty Images, iStock)

Back in June 2019, candidate Joe Biden told wealthy donors at a New York City fundraiser that "nothing would fundamentally change" in their lives if he were elected. Now that Biden sits in the Oval Office, that remark is appearing more prescient by the day, surely to the dismay of progressive Democrats. The House Ways and Means Committee on Wednesday passed a plan to fund Biden's $3.5 trillion social spending plan. Does it substantially increase taxes? It sure does, by $2.1 trillion over a decade. Yet it also doesn't appear to "fundamentally change" the lives of America's superrich.

Indeed, the Ways and Means plan takes a huge step back from many of the big tax hikes originally floated by Biden. Although the plan would increase the top personal income tax rate to 39.6 percent from the current 37 percent and add a 3 percent surtax to incomes over $5 million, it would raise the capital gains tax rate only to 25 percent from 20 percent. Biden would prefer labor and investment income taxed at the same nearly 40 percent rate. Nor does the plan call for the taxation of unrealized capital gains over $1 million at death, which the Biden White House supports. It also would also only limit the preferential tax treatment of "carried interest" — a major source of income for private equity fund managers — rather than eliminate it entirely. "Frankly this is a humiliating climbdown from the administration's posture," James Lucier, an analyst at Capital Alpha Partners in Washington, told The Financial Times. "This avoids most of the stuff that Wall Street is worried about." And one wealth planner tweeted that the changes were "FANTASTIC for the uber-wealthy."

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James Pethokoukis

James Pethokoukis is the DeWitt Wallace Fellow at the American Enterprise Institute where he runs the AEIdeas blog. He has also written for The New York Times, National Review, Commentary, The Weekly Standard, and other places.