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Biden administration gears up for tax hike

The Biden administration is preparing the first major federal tax hike since the early 1990s to cut the budget deficit and pay for a new, third stimulus program for the economy, in addition to the $1.9 trln Covid relief bill passed last week. Under consideration is a scenario whereby the tax breaks introduced by Donald Trump would be overturned. It is proposed to increase the corporate tax rate from 21% to 28%, and to abolish the tax preferences for limited liability companies.

In addition, a tax hike for wealthy individuals (with an annual income of $400,000 or more) and a higher capital-gains tax rates (for high-net-worth individuals earning at least $1 mln annually) is under consideration. Raising all four taxes would bring in $2.1 trln over 10 years. Funds are needed by the American budget, which is running a record deficit since World War II against the backdrop of large-scale programs to help businesses and households.

The attitude towards taxes is a fundamental difference between Republicans and Democrats. This is why the Republicans are sometimes referred to as the party of the rich and the Democrats as the party of the poor. However, this issue will have little impact on pulling the country out of the recession. Here the key factors are the lifting of restrictions and the vaccination drive.

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