I’m an Economist: How a Biden Reelection Would Impact the Tax Burden on the Poor
The 2024 U.S. presidential elections will be held on Tuesday, November 5, 2024, and Americans will decide whether former President Donald Trump is elected for a second term or if President Joe Biden continues his leadership. The election’s outcome holds profound implications for America’s global stance on both diplomatic relations and domestic policies like tax reform.
The two candidates propose vastly different approaches to taxation. Unlike Trump, who promises deeper tax cuts if he returns to the White House, President Joe Biden is preparing to raise taxes on the rich and address income inequality.
We interviewed Mónika López-Anuarbe, Associate Professor of Economics at Connecticut College, to understand what Biden’s proposed tax policies could mean for those in the lower income tax bracket.
How Biden Proposed Tax Policies Could Impact The Poor
Mónika López-Anuarbe notes that most of Biden’s proposed tax policies focus on wealth redistribution (from very high earners to lower earners) by adding taxes and increasing the burden for high earners and U.S. businesses.
“Specifically, these suggested reforms center on diminishing tax avoidance, denying corporate tax breaks, closing loopholes, and eliminating tax subsidies for certain industries,” she said in an email. “For example, he proposes raising the corporate tax rate to 28% (from 21%), to top the marginal tax rate to 39.6%, and to cut taxes for low-income families by 765 million over the next ten years, among other actions.”
López-Anuarbe believes that low-income households will benefit from complementary and tax-related measures, including increasing the tax child credit for 66 million children, lowering health insurance premiums, working on affordable housing policies and national paid family leave programs.
“However, I think that very wealthy people (multi-millionaires) will always find ways to shelter their assets or to raise the prices of unregulated products, thereby passing some of these costs to more financially vulnerable individuals,” she said.
Sectors That May Be Disproportionately Affected By Biden’s Tax Policies And The Impact On Low-Wage Workers
López-Anuarbe points out that one purpose of Biden’s tax proposal is to eliminate tax subsidies to certain industries, including the oil, gas, cryptocurrency, and real estate sectors.
Whether these industries truly need these subsidies is up for debate. What’s clear, though, is that workers in these sectors who are already struggling financially could be hit hard.
“Less well-off folks working in these fields could be negatively affected if their elasticity (i.e., sensitivity to changes and ability to adapt) is affected when sector leaders discuss employment and wage changes,” she explained.
In other words, Biden’s reelection could potentially lead to job insecurity or reduced wages as these industries respond to the revised tax environment.
Pros And Cons of Biden’s Reelection
As President Biden’s first term draws to a close, discussions about his potential reelection are gaining momentum. Weigh these pros and cons of Biden’s reelection, especially how it could affect taxes for lower-income individuals, to help you make an informed decision about who to vote for.
Pros
Progressive Agenda and Income Equity: “I believe that reelecting Biden would help push a more redistributive, comprehensive, and equitable agenda that seeks to address income disparities from multiple angles related to tax reforms and beyond,” López-Anuarbe said.
Policies That Benefit Low-Income Families: López-Anuarbe is also optimistic that Biden’s team will continue to work on lowering Medicare drug prices and policies impacting family wallets, such as child tax credits, college debt, health insurance premiums, family-paid leave programs, and affordable housing if he’s reelected.
Cons
Industry Backlash: As mentioned earlier, Biden may eliminate tax subsidies to certain industries, including the oil, gas, cryptocurrency, and real estate sectors, which could cause a backlash from companies in these industries that employ lower-income individuals.
Uncertainty Regarding Middle-Class Support: Since Biden hasn’t mentioned renewing the benefits of the expiring lower tax code, middle-class Americans could face a much higher tax rate when they file their taxes for 2025. “I hope that Biden explicitly considers and communicates tax policies that help strengthen the middle and upper-middle class, who often supports lower-income households at disproportionate rates compared to people with less constrained means,” López-Anuarbe said.
Relationship Between Elasticity And Share of Tax Burdens
Understanding who bears the brunt of taxes is important when it comes to examining how Biden’s reelection could impact the tax burden on the poor. According to López-Anuarb, taxes can hit harder on one side of the market — whether it’s the buyers who need something or the sellers who can’t easily switch to selling something else.
“This is called inelasticity, and it matters a lot when we talk about raising taxes,” she said.
Simply put, if demand (the buyers) is more inelastic to price changes compared to supply (the sellers), then consumers end up taking on most of the tax burden. But, if supply is more inelastic than demand, sellers bear most of the tax burden.
She notes since the tax burden typically falls more heavily on the side of the market that is most inelastic (e.g., has to buy or sell a product because of necessity or inability to switch to alternatives), this is something we have to consider when making decisions about tax increases.
“For example, when a luxury tax on yachts was implemented in the 90s to redistribute wealth, potential yacht buyers simply bought other luxuries, but yacht makers (who typically have lower income levels) ended up carrying most of the tax burden,” she said.
Also, in many cases, increasing taxes on corporations often leads to them raising prices to maintain profitability, which ultimately ends up affecting the lowest-income earners the most.
So, while Biden’s proposed tax policies seem to focus on wealth redistribution, they must be crafted carefully to avoid disproportionately burdening those who are already financially vulnerable.
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This article originally appeared on GOBankingRates.com: I’m an Economist: How a Biden Reelection Would Impact the Tax Burden on the Poor