President Biden is taking a two-pronged approach to narrowing the income divide: drive growth and redistribute income. To support growth, Biden leveraged the Democrat’s slim majority to pass The American Rescue Plan (ARP) in March. The $1.9tn stimulus plan is intended to supercharge growth to help facilitate a broad-based recovery in the labour market, while continuing to tackle the pandemic. In addition, Biden will attempt to address income redistribution using two powerful tools to fight the widening income inequalities, which are: unabated government aid and an overhaul of the tax code.
Stimulate growth
During the 2020 campaign, the President laid out a plan called Build Back Better -- a string of federal investments which could cost more than $3tn in areas ranging from infrastructure and climate change, to childcare, healthcare and education -- to be funded partially by higher taxes on the very wealthy and on corporations. Biden’s agenda goes beyond alleviating economic and financial suffering caused by the pandemic and aims to address broader structural issues of income inequality. Here are the main points of this agenda:
- Compensation: Hike the minimum wage to $15 per hour. He would also end the tipped minimum wage -- a low minimum wage allowed for workers who earn tips -- and sub-minimum wage for people with disabilities. Opponents argue that the hike could lead to 1.3 million jobs lost, citing data from the non-partisan Congressional Budget Office (CBO).
- Infrastructure: Biden’s campaign agenda highlighted a $2tn accelerated investment (see box at the end) to create jobs to build a modern and sustainable infrastructure in black and brown communities. The infrastructure bill includes traditional infrastructure projects such as roads, bridges, clean water and broadband access, as well as clean energy infrastructure, including clean grid and power transmission, clean cars and fuels, green energy incentives, plus a number of non-traditional infrastructure projects, such as schools, childcare, housing, hospitals and postal facilities. Since becoming President, the price tag of Biden’s infrastructure bill has ballooned as high as $4tn with the inclusion of tax incentives to improve energy efficiencies in buildings and credits to help families afford childcare. There is also some discussion of extending the temporary income tax cuts for individuals and families that were implemented during the Trump administration, and which are set to expire in 2025, as a way to help fight poverty. Overall, President Biden is targeting 40% of the overall benefits at minority communities.
During the campaign, the President laid out a plan called ‘Build Back Better’ -- a string of federal investments which could cost more than $3tn in areas ranging from infrastructure and climate change, to childcare, healthcare, and education -- to be funded partially by higher taxes on the very wealthy and on corporations.

- Housing: Biden signed an executive order directing the Department of Housing and Urban Development to examine Trump’s regulatory actions that undermined fair housing policies and laws. During the campaign, Biden proposed creating a new refundable and advanceable tax credit up to $15,000 to help families buy their first home.
- Small businesses: During the campaign, Biden called for the allocation of $10bn from the new Small Business Opportunity Fund to state and local venture capital programmes. Based on past government investments, he believes that this could spur $50bn in new equity investment to empower small business creation and expansion in economically disadvantaged areas, particularly for black, latino, Asian-American, Pacific islander and native American-owned businesses.
- Education opportunities: In addition to proposing student debt forgiveness, Biden also advocates making public colleges and universities tuition-free for all families with incomes below $125,000. He also wants free tuition at two-year community colleges.
- Promote unionisation: Looking to pass the Protecting the Right to Organize (PRO) Act that gives public service and federal government workers the right to unionise to strengthen their bargaining rights. He has committed to using union workers in the infrastructure buildout.
Income redistribution
The $1.9tn American Rescue Plan signed into law by President Biden in March includes several provisions aimed at income transfers:
- An expanded Child Tax Credit (CTC) for low-income earners;
- An expanded Earned Income Tax Credit (EITC) for workers without children; and
- An expansion of the Child and Dependent Care Tax Credit.
These programmes represent a significant increase in household income for lower income earners starting as soon as July 2021. For example, under the new child tax credit law, single earners with annual incomes up to $75,000 and married couples filing jointly with incomes up to $150,000, could begin receiving up to $600 a month per child under 6 and $500 per child under 18 as early as July, according to projections from the House Ways and Means Committee. The expanded credit will be available to millions of families who did not qualify before.
In 2019, the median household income was $5,725 per month, according to US Census data, which means a payment of $550 would increase a family’s income by 9.6%. The 2021 American Recovery Plan (ARP) will raise the EITC. Low paid working adults without children will also receive a nice boost to income. According to the Center on Budget and Policy Priorities (CBPP), ARP will raise the maximum EITC for ‘childless workers’ from about $540 to approximately $1,500, raise the income cap for them to qualify from about $16,000 to at least $21,000, and expand the age range of those eligible to include younger adults aged 19-24 who are not full-time students and those aged 65 and over. The CBPP projects these programmes will provide income support to over 17 million Americans. Two studies indicate that the CTC and the EITC should lead to a historic reduction in child poverty. A Columbia University study from the Center on Poverty and Social Policy found that those measures would almost halve child poverty, from 14.7% in December 2020 to a projected 7.8% in 2022.
The $1.9tn American Rescue Plan signed into law by President Biden in March includes several provisions aimed at income transfers; these programmes represent a significant increase in household income for lower income earners starting as soon as July 2021.
The Center on Poverty and Social Policy estimates that the CTC and EITC would reduce the number of children in poverty by more than 47% and lift 5.2 million children above half the poverty line, referred to as deep poverty.
Biden proposal to overhaul the tax code is centered around the following points:
- Raise the top personal income tax rate back to 39.6% from 37%;
- Raise the top corporate income tax from 21% to 28%;
- Tax capital gains and dividends at ordinary rates for those with annual incomes over $1 million;
- Tax profits earned from foreign subsidiaries of US firms at 21%;
- Impose a 15% minimum tax on book income of large companies (at least $100 million annual net income); and
- Apply social security payroll tax for those earning over $400,000 a year.
The Biden fiscal plan is aimed at reducing meaningfully income inequality for low-to middle-income households. According to the Tax Policy Center (TPC) analysis of the 2021 American Rescue Plan, a household in the lowest quintile would receive an average tax cut of $2,800 this year, boosting their after-tax income by 20.4% (see table 1). The after-tax income gains for the second and middle quintile is 9.3% and 5.5%, respectively. There are no gains in income for the top five percentiles.
A household in the lowest quintile would receive an average tax cut of $2,800 this year, boosting their after-tax income by 20.4%.
We think there may be an incremental narrowing in income inequality if the Biden tax agenda is implemented mostly in its entirety in 2022. According to the Tax Foundation, taxpayers in the top 1% would see their after-tax incomes decline by 11.3% due to an expected hike in the upper income tax bracket (see figure 6). The top 5% would see a 1.3% reduction in after-tax incomes. However, taxpayers in the lower income quintiles would see a sizeable jump in after-tax incomes, with the lowest quintile seeing a 10.8% boost, while the second quintile sees a 3.6% rise.