The tax plan of former New York Mayor and 2020 Democratic presidential candidate Michael Bloomberg shares something in common with his campaign overall: it’s moderate. Compared to the tax plans referenced by the other Democratic presidential candidates, the outline of Bloomberg’s plan is most akin to former Vice President Joe Biden.
To wit, the tax plans for the two men contain many of the same headline features. A comparison of these features is helpful to understand the overall direction that each tax plan would take.
A Comparison of Each Tax Plan
Both tax plans seek to raise the tax rates on capital gains to equal the rates on compensation and other ordinary income, to raise the top marginal tax bracket for individuals back to 39.6%, to raise the corporate tax rate to 28%, and to end the basis step-up on death that is in the current tax code. Bloomberg’s plan also includes a repeal of the 20% Qualified Business Income (QBI) deduction. While Mr. Biden has not specifically called for a similar repeal, he has previously stated that he would repeal the tax reform law known as the Tax Cuts and Jobs Act (TCJA) altogether, which obviously includes the QBI deduction.
Unlike these many similarities, Mr. Biden’s tax plan calls for an additional 10% tax on reported corporate profits, whereas Mr. Bloomberg’s tax plan would levy an additional 5% tax on individual incomes above $5 million per year.
Both candidates also propose a broader notion that they can work with their Republican counterparts to accomplish mutually beneficial legislation. To accomplish this, the current ideological landscape suggests that large portions under either of these tax plans would need to be substantially modified or eliminated.
Reconciling a Bipartisan Goal
Although there are many reasons why the parties may work together or stonewall one another, we will focus on one. A widely held view on tax policy is championed by a self-described taxpayer advocacy called Americans for Tax Reform (ATR) and its founder, Grover Norquist, which “opposes all tax increases as a matter of principle.” ATR generally subscribes to the “supply side economics” view that defined the tax cuts under both Presidents George W. Bush and Trump. To gain bipartisan appeal, Biden or Bloomberg’s tax plans may need to find a way to reconcile with these views, to the extent these views are maintained within the ranks of Congress (and particularly, the Senate).
The United States Constitution requires that tax legislation originate in the House of Representatives. The current makeup in the House of Representatives includes a minority of supporters for the supply side economics approach to tax reform. The tables turn in the Senate, however, where there is a majority of supporters for this view presently. Because any tax legislation that clears the House of Representatives must also be approved by the Senate, the views and interests of both sides must be reconciled before tax legislation can pass.
It is likely that the 2020 election will not dramatically affect the current composition of Congress and that the current Democratic majority in the House of Representatives may also be retained. In the Senate, there are 23 Republican seats subject to the upcoming election (including special elections in Arizona and Georgia. Most of these are in reliably conservative states, but Democrats would only need to have a net gain of three sets to gain control. The current prevailing view is that the parties will retain control of their respective chambers, however, which means either candidate’s tax plan would need to align sufficiently with the supply side view, perhaps along with other concession, in order to gain Senate approval and pass into law.
Even though Biden and Bloomberg both share the same tax policy goals, the real power to change the tax law remains with Congress. A tax bill does not reach the President’s desk to sign unless and until it has passed both Houses of Congress. Either candidate, if elected, would face substantial challenges in Congress as a result of the differing views on economic and tax policy. Regardless of who wins the Democratic nomination or even the Presidency, the passage of new tax legislation is far from a certainty. Congress still retains significant control over the process and it appears likely to remain sharply divided. For more information on tax reform and prospective tax law changes, please contact us.
Explore Our 2020 Campaign and Taxes Series