Biden Campaign Plan Offers Menu of Offsets
With Democratic majorities in the House and Senate, President Joe Biden has taken office with a real opportunity to advance new spending and tax breaks, including many elements of his campaign plan. To help pay for new spending and control the debt, lawmakers should rely on some of the $5.4 trillion of offsets proposed by President Biden during the 2020 campaign.
As we have explained many times, it is necessary and appropriate to borrow now to fund a robust public health and economic response to the COVID-19 pandemic. As a result of recent borrowing, however, the national debt is now larger than the economy and on course to be twice as large as the economy by 2050. This rate of growth is unsustainable and ultimately must be addressed.
As a starting point, lawmakers should avoid any increase in structural deficits by offsetting new spending or tax cuts unrelated to the current emergency with new tax increases or spending cuts. Offsets could be phased in over time in order to best support short-term recovery and long-term growth. However, lawmakers will eventually need to reduce deficits relative to their projected levels.
Luckily, President Biden has already proposed trillions-worth of such offsets and savings as part of his campaign plan. In October, we estimated President Biden’s campaign plan paid for roughly half of its $11 trillion of proposed new spending and tax breaks with $4.3 trillion of revenue increases and $1.2 trillion of spending reductions. These $5.5 trillion of potential offsets – along with bipartisan health savings and revenue options and others we have previously identified – could help the new Congress and Administration pay for their agenda and reduce future borrowing.
$4.25 Trillion of Proposed Tax Increases
The majority of payfors in President Biden’s campaign agenda come in the form of tax increases targeted at corporations and high income households, which is consistent with his repeated pledge to not increase taxes on households earning less than $400,000 per year. We provide a thorough, comprehensive analysis of President Biden’s tax plan in our paper Understanding Joe Biden’s 2020 Tax Plan, though some of these estimates are now out of date.
| Proposal | Ten-Year Deficit Reduction (Central Estimate) | |
|---|---|---|
| Individual Income Taxes | ||
| Restore the top individual income tax rate to 39.6 percent | $135 billion | |
| Phase out qualified business income deduction for income above $400,000 | $205 billion | |
| Tax capital gains at the same rate as ordinary income for taxpayers with over $1 million in income and tax unrealized gains at death | $425 billion | |
| Cap itemized deductions at 28 percent of value and restore "Pease Limitation" | $325 billion | |
| Eliminate certain tax preferences for the real estate industry, including "like-kind exchanges" | $300 billion | |
| Corporate Income Taxes | ||
| Increase the top corporate income tax rate to 28 percent | $1,215 billion | |
| Impose a 15 percent minimum tax on companies’ book income with credit for taxes paid to other countries and allow companies to carry over losses from nonprofitable years | $210 billion | |
| Double the minimum tax on the profits earned by US subsidiaries of foreign firms from 10.5 percent to 21 percent | $300 billion | |
| Eliminate tax preferences for fossil fuels | $20 billion | |
| End pharmaceutical companies’ tax deduction for advertisement spending | $15 billion | |
| Other Tax Policies | ||
| Increase the Social Security earnings cap | $900 billion | |
| Improve tax compliance | $100 billion | |
| Establish a financial risk fee on certain liabilities held by financial institutions with more than $50 billion in assets | $100 billion | |
| Sub-Total | $4,250 billion | |
President Biden would reverse several elements of President Trump’s Tax Cuts and Jobs Act (TCJA) that benefit households earning more than $400,000 per year, including restoring the top individual income tax rate to 39.6 percent from its current 37 percent. He would also tax long-term capital gains and dividends at the regular individual income tax rate of 39.6 percent for households earning over $1 million, as opposed to the 20 percent rate under current law. President Biden has also proposed instituting an overall cap of 28 percent on the rate against which one could take itemized deductions and repealing “like-kind exchanges” that benefit real estate investors.
For corporations, President Biden would increase the income tax rate from its current 21 percent – reduced from 35 percent in the TCJA – to 28 percent. He would implement minimum tax levels on both corporate book profits and certain income earned abroad, along with other smaller reforms to how such income is taxed. President Biden has also proposed a 10 percent surtax on the sales of goods and services to American consumers by American firms that route their transactions through a foreign subsidiary.
As part of his broader Social Security reform plan, President Biden has proposed increasing the amount of income subject to the 12.4 percent Social Security payroll tax, which is currently capped at $137,700 in 2020. President Biden would subject wages above $400,000 to this same 12.4 percent tax, leaving a “donut hole” between the current taxable maximum and $400,000, which would gradually close and eventually disappear as the current taxable maximum increases with wages.
President Biden would institute a “financial risk fee” on banks, bank holding companies, and non-bank financial institutions with over $50 billion in assets and would enact a number of measures to close the “tax gap,” taxes which are owed but have not been paid or collected.
$1.2 Trillion of Proposed Spending Reductions and Cost-Saving Reforms
In addition to $4.3 trillion of proposed revenue increases, we estimate President Biden's 2020 campaign plan included approximately $1.2 trillion of spending reductions and other cost-saving reforms.
| Proposal | Ten-Year Deficit Reduction (Central Estimate) | |
|---|---|---|
| National Security and Immigration | ||
| Bring vast majority of troops home from Afghanistan and narrow mission focus to Al-Qaeda and ISIS | $550 billion | |
| Pass Immigration Reform* | $200 billion | |
| Health Care | ||
| Allow Medicare to negotiate drug prices and limit launch prices for new drugs with no competition | $325 billion | |
| Cap Medicare Part B and D drug price growth at the rate of inflation | $80 billion | |
| Allow consumers to buy drugs from other countries, pending certification by HHS that the drugs are safe | $10 billion | |
| Improve the supply of quality generics and accelerate their development through proposals such as Senator Leahy’s CREATES Act | $5 billion | |
| Enact other measures to reduce prescription drug and health care costs | $25 billion | |
| Sub-Total | $1,195 billion | |
*The $200 billion score from immigration reform is a net effect of increasing both revenue and spending, but increasing revenue by more.
$550 billion of that total comes from President Biden's commitment to significantly scale-back America’s engagement in military conflicts around the world, including ending “forever wars” in Afghanistan and the Middle East. Specifically, President Biden proposes to narrow the focus of the U.S. military’s mission to combat Al-Qaeda and ISIS, which would significantly reduce spending on Overseas Contingency Operations (OCO), which currently total about $80 billion per year.
President Biden also promises to significantly overhaul the immigration system in two stages. He would first undo virtually all the changes made to immigration policy by the Trump Administration. Then, President Biden would work with Congress to pass comprehensive immigration reform legislation that would increase the volume of legal immigration, create a pathway to citizenship for undocumented immigrants currently living in the United States, expand visas for high-skilled workers and agricultural workers, eliminate country quotas, significantly increase the annual limit on refugees, and achieve various other policy goals. President Biden helped develop a similar bill in 2013 as Vice President.
In terms of health care, President Biden put forward a number of measures to control drug prices. To reduce prescription drug spending for both individuals and the federal government, President Biden would use the federal government’s market and regulatory power to limit prices. Specifically, he would repeal the ban on Medicare negotiating drug prices directly. For new drugs and biologics sold without competition, Biden would establish an independent board to set reasonable prices based on the average price in other countries (when available). This price would be used in Medicare and Biden's proposed public option plan and would also be available for private plans on the individual market.
President Biden would also reduce prescription drug prices by limiting price increases for name-brand drugs, biotech drugs, and “abusively priced” generic drugs to the rate of inflation. In order to participate in Medicare or the new public option, drug manufacturers would be required to adhere to this limit, which would be enforced through a tax penalty. In addition, President Biden would allow the purchase of safe prescription drugs from other countries and he supports “numerous proposals” to encourage the accelerated development and introduction of generic drugs to increase competition.
Several of President Biden's proposals for prescription drug savings appear to be more modest versions of provisions included in H.R.3, the Elijah E. Cummings Lower Drug Costs Now Act, which was passed by the House in December 2019 and would result in even greater prescription drug savings than President Biden proposes if signed into law.
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Importantly, our estimates of the Biden campaign plan are rough and were mostly based on a pre-pandemic revenue baseline. Moreover, different versions of the policies President Biden put forward could yield higher or lower savings. Regardless of the specific dollar amount, Biden's campaign plan clearly proposes a large number of available offsets to help finance potential new spending and reduce excessive borrowing. We encourage lawmakers to consider these and other tax and spending changes when considering new spending proposals. Deficit financing new legislation on the grounds that offsets are not available is not a valid argument.
