President Joe Biden has made no secret of his admiration for Franklin D. Roosevelt. He’s even given a painted portrait of FDR the most prominent place of honor in the White House Oval Office. A bit more significantly, Biden has just announced the most ambitious gameplan — since FDR’s New Deal — for enhancing the well-being of working Americans and trimming the incomes of America’s super rich.
Has Biden, with this gameplan, definitively reached FDR-like levels on the political daring meter? Has his administration now earned something close to Rooseveltian stature? That all depends — on how we answer just one more question: Just how bold does Biden’s new tax-the-rich plan actually happen to be?
This observer’s answer: Much bolder than the numbers — at first glance — might seem to suggest.
Let’s start by going back to FDR’s last year in office, the 12 months before he passed in 1945. At that point in time, the nation’s most awesomely affluent faced a 94 percent tax on their ordinary income over $200,000, earnings that would equal a little more than $2.9 million in today’s dollars.
Tax brackets below that $200,000 back then also carried stiff rates. One example: Affluents in FDR’s last year paid a 78 percent tax on income between $50,000 and $60,000, the equivalent of between $736,000 and $883,000 today, and every income bracket between $60,000 and $200,000 sported a progressively higher tax rate.
The tax rates the Biden administration has just proposed come nowhere near those 90-plus or even 70-plus Rooseveltian rates. If Congress goes along with the Biden plan, any personal income over $400,000 from employment or the ownership of a business will just face a 39.6 percent tax, a rate only up slightly from the current 37 percent.
But what seems a huge gap between New Deal-era tax rates on high incomes and what the Biden administration is proposing starts shrinking big-time when we toss capital gains — the dollars the rich make buying and selling stocks and bonds, property, and other assets — into the picture.
In 1945, at the end of the Roosevelt administration, the nation’s deepest pockets paid a 25 percent tax on their capital gain windfalls. Today’s really rich currently face a capital gains tax that tops off at 20 percent. For households making over $1 million in annual income, the Biden plan would raise the top capital gains tax rate to 39.6 percent, the same top rate that applies to earnings from employment.
In other words, the new Biden tax plans ends the most basic of our tax code’s breaks for the ultra rich: the preferential treatment they get on the income from their wheeling and dealing. And the ending of this preferential treatment would be a big deal indeed. In 2019, 75 percent of the benefits gushing in from the capital gains tax break went to America’s top 1 percent.
Dividends currently get the same preferential federal tax treatment as capital gains. Americans making over $10 million in 2018 took in over half of their total incomes — 54 percent — via capital gains and dividends. If Congress adopts the Biden tax plan, the basic federal tax on that 54 percent would just about double, from 20 to 39.6 percent.
The Biden plan also totally eliminates the federal tax code’s open invitation to dynastic family wealth: the “step up” loophole. Under this notorious tax code giveaway, any fabulously wealthy American sitting on unrealized capital gains can pass those gains onto heirs tax-free.
Suppose, say, that a billionaire passes away while still holding $100 billion worth of stock that he bought for $20 billion. That billionaire’s heirs need pay no tax on any of that $80 billion gain because, under current law, the original $20 billion value of this stock gets “stepped up” to the stock’s value at the time of the billionaire’s death.
Under the Biden plan, if the heirs in our little morality tale sell their inherited shares, they’ll pay a capital gains tax on the difference between the $20 billion originally spent to buy the shares and whatever they reap from selling them. In effect, the Biden plan short-circuits the simplest route to dynastic fortune. No more tax-free pass on inherited capital gains.
In a United States with the Biden tax plan the law of the land, new dynastic fortunes will have a much harder time taking root. Already existing dynastic fortunes, on the other hand, will still be with us. Biden — like FDR in his day — has not yet warmed to the idea of a wealth tax.
Earlier this week, Senator Elizabeth Warren led a Capitol Hill hearing that highlighted the enormous contribution that even a mere 2 percent annual tax on grand fortune could make. Among the insightful witnesses at the hearing: the 61-year-old Abigail Disney, the granddaughter of Roy Disney, the co-founder of the Disney empire with his brother Walt.
“I can tell you from personal experience,” Abigail Disney told the assembled senators, “that too much money is a morally corrosive thing — it gnaws away at your character, it narrows your focus down onto your own well-being, it warps your idea of how much you matter and rather than make you free it turns you fearful of losing what you have.”
Franklin Roosevelt understood that debilitating dynamic well enough to propose, in 1942, a 100 percent tax on annual income over what today would be about $400,000. Joe Biden hasn’t yet ventured anywhere close to that level of daring. But he’s certainly come much further down the road to tax and economic fairness than anyone could reasonably have expected. FDR must be smiling.