Yellen: No New Taxes (Unless You're Rich)

Treasury Secretary promises that American families making less than $400,000 a year won't see their taxes go up under Biden plan.
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While touting the president's proposals to invest in the U.S. economy, Treasury Secretary Janet Yellen promised that American families who earn less than $400,000 a year won't see their taxes go up -- despite talk of an increase in rates for America's wealthy. 

"The president has pledged that no family earning under $400,000 will pay a penny more in taxes," said Yellen on NBC News' "Meet the Press" on Sunday, according to a transcript. "And we've been assiduous in sticking to that pledge."

Repeating what President Joe Biden said late last month, Yellen said the administration is advocating closing corporate tax loopholes, raising taxes on some of America's wealthiest, and specifically targeting capital gains taxes and other rates for the rich -- but not the middle class or poor -- to pay for his administration's $6 trillion proposals to invest in infrastructure, education, health care, and research and development. 

The administration wants to return taxes on the rich to 39.6%, said Yellen, back to where they were at before 2017. "And for the tiny group -- three-tenths of 1% -- of Americans making more than a million dollars, that they would be asked to pay on capital gains and dividends that same rate, rather than the far lower rate it is now. And President Biden believes, and I agree, that workers shouldn't face higher taxes on their wage income than wealthy individuals do on their rewards from -- to capital."

The top tax rate on long-term capital gains would nearly double under Biden's plan.

Biden in late April said he wanted to raises those tax levels for the richest Americans, calling a 2017 tax cut that brought the rate down to 37% as one of the "clearest giveaways to the wealthy." 

"This rate cut alone gives a couple with $2 million in taxable an annual tax cut of more than $36,400," said Biden in a speech about his $1.8 trillion "American Families Plan."

Part of his tax proposal was to end what he called capital income tax breaks and loopholes for the super rich that allow the wealthy to pay lower tax rates on capital gains and dividends than many middle-class families pay on their wages. 

"Households making over $1 million will pay the same 39.6% rate on all their income, equalizing the rate paid on investment returns and wages," he promised.

Biden also wants Congress force hedge fund partners to pay "ordinary income rates" on income and proposed other changes to taxes for the rich.

Some have been critical of the proposals, however, saying they would eventually hurt the economy.

Raising the top capital gains tax rate to 39.6 percent for those earning over $1 million would reduce the Gross Domestic Product by about 0.1% and shrink federal revenue by about $124 billion over 10 years, said the Tax Foundation late last month.

The group claims that under Biden’s proposal, the U.S. economy would be "smaller, American incomes would be reduced, and federal revenue would also drop" because the rich would choose not to realize their capital gains at the higher rates.

"Other proposals, such as partially repealing step-up in basis for capital gains, may help offset the realization effect and increase federal revenue, but it remains important to consider the combined tax rate on capital gains in the context of the President’s tax proposals," wrote the non-profit group.

In the interview on Sunday, Yellen said that Biden has "made clear that he believes that permanent increases in spending should be paid for and I agree."

"I think we're in a good fiscal position," she said. "Interest rates are historically low. They've been that way for a long time, and it's likely they'll stay that way into the future. But we do need fiscal space to be able to address emergencies." 

This story has been updated.