On April 29th, US President Joe Biden announced a new round of fiscal proposals, the American Family Plan, which aims to generate about $1.8 trillion in investment and tax breaks over 10 years. Specific expenditures include:

• Spending on education: $511 billion to increase four years of free public education, narrowing the education gap and allowing more people to enjoy college education.

• Family and child benefits: direct assistance to children and families at an expenditure of approximately $495 billion.

• Tax cuts for vulnerable groups: tax cuts for American families and workers, with a tax credit of about $800 billion.

Coupled with the $2.35 trillion American jobs plan proposed in March, Mr Biden has yet to land a fiscal stimulus of more than $4,000bn. In order to make up for the huge fiscal deficitTax increases are a necessary prerequisite for the landing of American infrastructure and family plans.

I. three important parts of Biden tax reform-corporate income tax, global minimum tax, and capital gains tax

The root causes of America's fiscal problems are:For the past 40 years,The multiple tax avoidance of multinational enterprises and the wealthy has greatly reduced the government's ability to obtain tax revenue.. While multinational enterprises and executives gain a lot of benefits in the process of globalization, through the complex related party transactions among subsidiaries of various countries, the taxable income in their home country is reduced, and profits are transferred to countries with lower tax rates as far as possible, so as to achieve reasonable tax avoidance. In 2018, the average effective tax rate for the 400 richest households in the United States was 23%, one percentage point lower than the 24.2% for the bottom 50%.

First, for enterprises to make use ofTax avoidance strategies for capital expenditure (depreciation) tax credit, intangible assets tax credit and profit transfer overseasBiden advocated the use of new and tougher anti-tax base erosion policies ("SHIELD")Set more stringent regulations and fines to regulate the behavior of enterprises with "tax inversion".The relevant corporate tax reform specifically involves five aspects:

• The enterprise income tax rate will be raised from 21% to 28%.

• The introduction of stricter global minimum tax rates for multinationals encourages global acceptance of higher minimum tax rates and reduces the incentive for multinationals to transfer profits to other countries.

• A 15 per cent minimum tax is levied on companies with paper profits of more than $2 billion. According to estimates by the Wall Street Journal, only 180 companies in the United States meet this threshold, and in the end, only 45 companies are expected to pay the 15% corporate tax.

• Eliminate incentives for excess profits on intangible assets and give more generous incentives for new research and development; double the global low tax income (Global Intangible Low Tax Income) tax rate on intangible assets for overseas subsidiaries of US companies from 10.5 per cent to 21 per cent.

• Encourage clean energy production to replace fossil fuel subsidies, and companies will receive tax breaks for investments in areas such as scientific and technological research and development and low-income affordable housing.

Second, bye.The Reform of Corporate tax and the second Pillar Reform of OECD(BEPS-- tax base erosion and profit transfer problem)The direction is basically the same.。

According to an OECD survey of nominal corporate income tax (CIT) rates in 94 tax jurisdictions, the average unweighted statutory corporate income tax rate in 2018 was 24% (excluding "tax havens" with no corporate income tax or zero tax rate). Among them, the statutory corporate income tax rate in seven tax jurisdictions is less than 15%. The statutory corporate income tax rate in one tax jurisdiction is less than 10%.

Raising the corporate tax rate in the United States to 25 percent, 28 percent, will weaken the international tax competitiveness of the United States, which will become one of the countries with the highest tax rates among OECD countries. The relatively high corporate tax rate gives companies an incentive to transfer profits abroad, so the United States needs to promote international tax reform (minimum tax rate) at the same time. At the meeting of G20 finance ministers and central bank governors on April 7, Ms Yellen urged countries to adopt the US proposal to set the global minimum tax rate at 21 per cent, compared with the current design of 12.5 per cent for the second pillar.

If the "lowest global corporate tax rate" can be achieved and governments sign contracts with the United States to agree on a minimum tax rate, then the situation of lower-by-lower competition in tax rates can be improved. According to estimates by the US Treasury, various tax avoidance methods of multinational corporations in the United States will cost them $500 billion to $600 billion in corporate tax every year. In 2017, Fortune 500 companies hid $2.6 trillion in offshore assets in tax havens. The tax plan will bring back about $2 trillion in corporate profits for the United States, with higher tax rates on overseas profits and the setting of a global minimum tax rate likely to have a greater impact on tech giants.

In exchange for a minimum tax rate, European countries have made it clear that they must also impose a "digital tax" on the transnational income of tech giants.This will also be a targeted strikeOverseas profits of American Science and Technology Enterprises。

Third, in view of the long-standing problem in the tax law that the tax on return on capital is lower than that on labor, Biden advocated raising the capital gains and income tax rates of the rich., specifically:

• Raise the maximum personal income tax rate for taxable income exceeding US $400000 to 39.6% from 37% under current law.
  

• Raising the capital gains tax rate for those earning more than $1 million a year to 39.6 per cent from the current 20 per cent, coupled with the existing investment income surtax, means that the federal tax rate for investors could be as high as 43.4 per cent.

• Strengthen tax enforcement, require financial institutions to report information on account flows, and increase investment in the State tax Service to ensure that more resources are devoted to strengthening tax audits of high-income earners.

II. The past of tax increases in the United States

There have been six large-scale tax increases by the US government in history.Four of them were to balance war expenditure: world War I (1916-1918), World War II (1940-1944), the Korean War (1950-1952), and the Vietnam War (1968-1970). The other two were the Roosevelt New deal after the Great Depression. and the 1990 Monitoring Budget Mediation Act introduced by the Bush and Clinton administrations in the early 1990s and the Annual Budget Adjustment Act introduced in 1993.

In 1929, under the laissez-faire management of the Hoover government, the United States broke out the biggest economic crisis in the history of capitalism. In order to restore employment and service economy, Roosevelt ordered the banking and financial system to be reorganized. In terms of taxation, Roosevelt levied income tax on companies, excessive profits tax on individuals, and the highest marginal tax rate on individuals increased year by year, rising to 25% in 1930, 63% in 1932, and 79% in 1936. Estate tax and property legacy tax are levied on high-income people.

From 1990 to 1993, in response to the sharp increase in social and public spending such as defense and health care, the Bush administration passed the 1990 Budget Supervision Mediation Act, which adjusted the highest marginal tax rate of personal income tax to 31%. In 1993, the Clinton administration introduced the largest tax increase since 1950, supporting its information superhighway plan, raising the highest marginal tax rate of personal income tax from 31% to 39.6% and the corporate income tax rate from 34% to 35%.

III. The impact of raising corporate tax and personal income tax

Whether the income from tax increase is used by the people or not determines the change of residents' actual disposable income and consumption.During the war, taxes usually lead to a reduction in personal disposable income and consumer spending, while when raising taxes for infrastructure projects, the spillover effects of income adjustment and infrastructure often push up the growth of personal disposable income and consumer spending.

The role of American personal income tax policy in regulating the distribution of wealth in the United States is declining.After 1970, deregulated wage controls, globalisation, monopolies of large technology companies and rising asset prices weakened the role of tax reform, and the gap between rich and poor worsened.

During the period of tax increases as a result of the war, inflation tends to rise (World War II and Vietnam War), reflecting the characteristics of lack of materials and excessive fiscal expenditure.In normal times, inflation is the result of income, expenditure and the gap between the rich and the poor.During the Roosevelt infrastructure period, all three improved, and inflation rose significantly; during the Clinton period, income and expenditure picked up, but the gap between the rich and the poor widened and inflation slowed down. Globalization is also an important factor affecting inflation. The rapid decline of globalization after World War I pushed up inflation, while the Clinton administration was in the second wave of globalization that began after the 1980s, exacerbating the decline of the inflation center.

IV. Capital gains tax does not affect the long-term trend of polarization between the rich and the poor.

Individual income tax is only taxed on labor income, and the Gini coefficient of labor income lacks consideration of asset price changes.The root causes of the gap between the rich and the poor in the United StatesIt is not the current income gap, but the long-term asset gap.As the asset gap between the rich and the poor has formed an insurmountable and growing gap, the gap between the rich and the poor in the United States will continue to grow if we rely solely on the "income tax". Even if it limits the growth of the wealth of the rich, the gap between the rich and the poor in the United States will increase day by day because of the aggregate effect.

Most of the economic rescue packages adopted by the US government in response to the epidemic have gone to the rich through the appreciation of real estate and stocks. The wealth of American billionaires alone increased by 34% in 2020, an increase of more than one trillion US dollars. On this basis, the increase in capital gains tax advocated by Biden is considered to be an effective means to improve the gap between the rich and the poor.

The United States has experienced four major increases in capital gains tax since 1954:

► in 1969, then-President Richard Nixon signed the Federal tax Reform Act, which aims to tax high earners and raises the long-term tax rate on alternative capital gains.

► President Gerald Ford signed a tax reform bill in 1976, raising the minimum tax rate on capital gains from 10 per cent to 15 per cent and extending the preferential tax holding period for long-term capital gains from six months to one year.

► President Reagan signed the new tax Reform Act in 1986, under which long-term capital gains will no longer be exempt from tax by 60% and will be paid at a regular tax rate of 28%, eventually raising the effective capital gains tax rate. It should be noted that although the capital gains tax rate has been raised during this period, the marginal maximum personal income tax rate has been sharply reduced from 50% to 28%, while the marginal minimum tax rate has been raised from 11% to 15%. This is the first reform in American history that the personal income tax rate is skewed towards the rich.

► in 2013 Mr Obama raised the capital gains tax to finance the health care bill, raising the capital gains tax from 20 per cent to 25 per cent.

We use the proportion of net worth in the wealth of the whole society to measure the impact of the increase in capital gains tax on the gap between the rich and the poor.As a result, in the three tax reforms in 1969, 1976 and 2013, the increase in effective capital gains tax reduced the total wealth share of the top 0.01 per cent of US residents in the short term.The tax reform did not change much in 1969. The effect of the increase in the capital gains tax rate in 1986 was less than the reduction in the personal income tax rate of the rich, so the gap between the rich and the poor widened.

But from a lengthening point of view, the share of the total wealth of the first 0.01% of the population after 1980 is expanding with the market capitalization of the US stock market.The increase in the capital gains tax rate only slows the widening gap between the rich and the poor, the rich will not permanently reduce the allocation of assets, and the gap between the rich and the poor cannot be fundamentally changed.

5. Conclusion: can tax increases bring equality?

According to Keynes, the free market is like an unpredictable and sometimes dangerous beast that needs to be guided by the art of public management. After the end of World War II, although American public policy has been under the banner of Keynesianism for a long time, it is actually deviating from Keynes day by day.

Republicans and Democrats are supporters of "small government" and "big government" respectively, but it is precisely whenever the Republican Party, which claims to attach importance to a "balanced budget", comes to power, the US deficit soars. After Roosevelt, the Democrats gradually alienated Keynes to accept conservative economic ideas, emphasizing fiscal austerity and balancing the budget.

In his inaugural speech, Reagan said: "the government cannot solve our problems. The government itself is the problem." The Reagan administration repaired the mechanism of free competition through tax cuts, deregulation, and increased military spending, and ended Keynesianism, which has dominated the governing philosophy of the US government for nearly half a century since the Great Depression.

After the end of the Cold War, American liberal capitalism is invincible, neo-liberalism that advocates deregulation has become an indisputable golden rule, and even Democratic presidents are inclined to small government. "the era of big government is over," Clinton declared. "

In his first 100 days in office, Biden launched a total of 6 trillion fiscal stimulus packages, similar to Roosevelt's New deal and Johnson's great society. It is undoubtedly a return of Keynesianism, and the emergence of the "era of big government" is a counter-revolution to the Reagan revolution 40 years ago.

But it now faces outright opposition from Republicans and divisions within Democrats. Whether based on ideology or political struggle, Republicans have said they will never let Biden's tax increase pass easily. Under the power pattern that Democrats in both houses of Congress are overwhelmingly dominant, how to win the support of moderates and Republicans in the democratic party tests Biden's political wisdom. From the perspective of the art of compromise, if the tax increase plan is passed, it is bound to be less powerful, and the actual effect of tax increases on businesses and the rich will be even weaker.

Historically,American tax policy is on the decline in regulating the distribution of wealth in the United States.Raising taxes can narrow the gap between rich and poor most of the time, but the improvement is only short-lived.Even if it is only short-lived, it has something to do with the use of funds. Traditional infrastructure and human capital investment will benefit workers relatively, their landing probability is higher, and the gap between the rich and the poor can be narrowed temporarily. New energy infrastructure will benefit technology companies relatively, while energy-intensive traditional companies will be relatively hurt, and higher energy costs will also widen the gap between rich and poor; the landing is expected to be smaller because of strong opposition from Republican stakeholders. If the Robinson-style "direct money" is adopted to distribute capital income directly to workers, such as UBI (universal basic income) proposed by Yang Anze, it is possible to increase the risk of stagflation. Anyway,If the trend of globalization and the use of capital and technology is not fundamentally changed, the gap between the rich and the poor can hardly be effectively improved in the long run.