A widening wealth gap is the opposite of what U.S. President Joe Biden promised. But billionaires like Tesla boss Elon Musk will feel only slight pain from a Democratic tax plan while the political party also cut spending on social programs by half to about $1.8 trillion. Biden’s push to create a fairer economy is falling short.
The biggest problem is that the president is struggling to get his ideas past members of his own party. He has repeatedly said he’s tired of the rich not paying their fair share in taxes, which he argued would change under his leadership. He proposed doubling the capital gains rate to nearly 40%, potentially hitting people like Musk, whom Forbes estimates is worth about $275 billion and whose wealth is largely tied to ownership of Tesla shares and options.
Because of opposition from two moderate Democratic senators, the latest version of Biden’s plan unveiled on Thursday doesn’t touch capital gains at all. Scrapping the “carried interest” loophole, which allows private equity and hedge fund barons to pay a lower levy on investment earnings than regular income, was an early casualty. Instead, on the table is a 5% surtax on annual income over $10 million, and possibly an additional levy for those making more than $25 million.
While the proposal increases spending on social programs including free preschool for all families and needs-based childcare assistance, Democrats could do more with their control of Congress and the White House. A key part of Biden’s initial proposal, 12 weeks of paid family and medical leave, was omitted. And the decision to expand Medicare, health insurance for senior citizens, only includes hearing, not dental or vision.
It’s not only a missed opportunity but risks widening the wealth gap, antithetical to Biden’s agenda. In 2020, the top 20% of earners increased their share of aggregate income, while that of the bottom 20% shrank, according to the U.S. Census Bureau. The White House reckons the surtax on multi-millionaires would raise $230 billion over possibly 10 years, hardly a dent in the $43 trillion in wealth owned by the top 1%, according to the U.S. Federal Reserve. Slimming down programs for the poor while protecting America’s billionaires will only make the wealth gap grow.