Biden's Tax Plan - April 3

[dan_s]

Summary
Yesterday, the Biden administration put forth "The American Jobs Plan" (AJP), a sweeping proposal that calls for roughly $2.25 trillion in public investments over the remainder of this decade.

The AJP also includes proposed tax hikes to pay for the new spending. The plan's tax hikes are concentrated on the corporate side of the tax code and call for raising the corporate income tax rate to 28% from 21%, introducing a 15% minimum tax on corporations' “book income”, increasing the minimum rate on global intangible low-taxed income (GILTI) to 21% from 10.5% assessing it on a country-by-country basis and eliminating the qualified business asset investment (QBAI) exemption.

Based on our review of independent estimates, these proposed tax changes would probably raise around $1.25-$1.50 trillion over the remainder of the decade if implemented in full.

Our initial thoughts on this proposal are that something along these lines probably can pass Congress and become law by the fall, although we suspect the $2.25 trillion in proposed spending and the corresponding tax increases will be shaved down somewhat over time.

In our view, the biggest thorn is what was not in yesterday's release. Reports have been circulating for weeks that the Biden administration will lay out a second plan sometime in April that will include a host of other proposed social welfare changes such as federal paid family leave, free community college, universal pre-K and extending the recently expanded Child Tax Credit.

While the details remain unclear, these proposals could add another $1-$2 trillion on top of the roughly $2 trillion proposed yesterday. We believe the Biden administration will need to dig deeper into its bag to ensure there is enough long-term revenue to make these additional programs permanent.

We believe the second plan will include changes to personal income taxes such as raising the top marginal rate to 39.6%, taxing capital gains as ordinary income for those making more than $1 million annually and repealing step-up basis. By our count, however, these changes would “only” raise about $500 billion over the decade.

We would take the under on $3-$4 trillion in total, but if spread over a decade or longer, an eventual package (combined or in multiple parts) of $2-$3 trillion could very well be in the cards. If we are correct, corporate and personal income taxes would likely be headed higher in the not-too-distant future.

From an economic perspective, our views have not changed much from our previous report. The recently enacted $1.8 trillion American Rescue Plan (ARP) supercharged growth and inflation expectations because it was deficit-financed and spent almost entirely over a one- to two-year period. In contrast, if a $3 trillion infrastructure/social welfare package is spent evenly over eight years, that comes to $375 billion per year.

The economic impact from that new spending would at least partially net off against at least $150 billion per year in new taxes. We also suspect that so much infrastructure money would be spent over a longer time horizon.

More details here: https://wellsfargo.bluematrix.com/links ... ca8f998e47

MY TAKE: Hyper-Inflation is less than two years away.