When it comes to enacting his legislative agenda, the incoming president faces obstacles ranging from the ongoing coronavirus pandemic to narrow margins in Congress. But one of Joe Biden’s greatest impediments to his agenda may be self-inflicted.
While the media have started to focus on Hunter Biden’s tax returns, given the recent announcement of a federal investigation into his affairs, the returns of Hunter’s father Joe may have a bigger impact on a Biden Administration’s policy proposals. Moreover, at a time when Americans have grown weary of lawmakers disobeying their own coronavirus orders, they may not take well to another politician violating his stated policy principles.
Questionable Tax Practices
As I previously reported, Joe and Jill Biden used questionable tax maneuvers to avoid paying over half a million dollars in payroll taxes. According to their 2017, 2018, and 2019 tax returns, the Bidens characterized most of their book and speech income as profits from two corporations, CelticCapri Corporation and Giacoppa Corporation, rather than wages.
The Bidens paid income taxes on all of their earnings. But under current law, the Bidens did not pay payroll taxes—a 2.9% Medicare tax, and a 0.9% payroll tax imposed by Obamacare—on the money declared as corporate profits. As a result, the Bidens avoided paying $513,540 in Medicare and Obamacare taxes on over $13.5 million in income.
Tax experts interviewed by the Wall Street Journal in 2019 raised questions about the validity of this scheme. For one, Biden’s income came from his own intellectual property—writing a book and making personal appearances—raising questions about why he characterized much of his income as corporate profits and not wages. Moreover, Biden took a very low salary compared to the size of those corporate profits, making it look like he understated his wage income solely to avoid payroll taxes. (RELATED: VICTOR DAVIS HANSON: Biden Should Beware Of Nemesis)
Impact at Confirmation Hearings
For a party focused heavily on raising taxes on the rich and expanding entitlements, Biden’s actions contradict much of his economic agenda. His tax scheme could help define the next four years, beginning with nominees’ confirmation hearings. Nominees for key health care positions—including Health and Human Services Secretary-designee Xavier Becerra—may have to answer questions from Senate Republicans about how and why the Biden Administration wants to expand Obamacare when Joe Biden himself failed to pay the taxes that fund the program.
Other nominees will face more specific queries. For instance, the liberal Center for American Progress, headed by Office of Management and Budget Director-designee Neera Tanden, called the maneuver the Bidens used a “loophole that enable[s] high-income individuals to avoid Medicare contributions.” Does Tanden approve of Biden using what her own organization called a tax loophole—and if not, why did she accept a position in his administration?
Republicans can ask Treasury Secretary-designee Janet Yellen what she thinks of Biden declaring only $145,833 in wage income in 2017, while reporting nearly $9.5 million in corporate profits. How does Biden paying himself such a low salary—in a year when he received a reported $8 million book advance—comport with IRS regulations on “reasonable compensation” designed to prevent individuals from using the corporate profit loophole to circumvent payroll taxes?
Will Yellen request an audit of Biden’s returns, given that tax experts have called his behavior into question?
Impact on Tax and Spending Plans
Yellen and Tanden should also face questions about how Biden’s behavior will affect the incoming administration’s plan for tax increases on the wealthy. His revenue proposals center around raising Social Security taxes by 12.4% on all wage income over $400,000. But over the past three years, Biden’s own tax returns never declared wage income of over $300,000, despite the fact that Joe Biden earned over $9.6 million in total income in 2017 and over $3 million in 2018.
Conservatives can legitimately argue to congressional scorekeepers that the linchpin of Biden’s tax plan will raise minimal if any revenue. After all, wealthy individuals will likely follow in Biden’s own footsteps, forming corporations to characterize earnings over the $400,000 threshold as profits and avoid the new payroll tax. This scenario would see Biden’s tax plan raising much less than his campaign estimated—unless Biden gets forced to try and close a loophole he himself exploited as recently as last year, which would cause its own political problems.
Biden’s actions also undermine his party’s health care agenda, starting with the pending Supreme Court case on Obamacare. Conservatives have struggled for years with their messaging on pre-existing conditions—but Biden’s tax returns provide them with a critical lifeline. After all, how can Biden claim to support individuals with pre-existing conditions if he avoided paying $121,628 in Obamacare taxes?
Savvy lawmakers should question their Democratic colleagues at every opportunity whether they endorse Biden’s stiff-arming of Obamacare recipients. And while Republicans did not raise the issue during the 2020 campaign, every Democratic attack ad in 2022 or 2024 regarding pre-existing conditions can—and should—see conservatives responding with ads of their own, attacking the hypocrisy of Biden and the Democratic party on this issue.
Perhaps most importantly, Biden’s tax avoidance will impact an unheralded issue: the looming insolvency of the Medicare trust fund. While neither Biden nor Donald Trump put forward plans to make Medicare solvent during the campaign, a Biden Administration will almost certainly face tough choices during the next four years. The program’s trustees stated this spring that Medicare’s Hospital Insurance Trust Fund will become insolvent in 2026, but the COVID-19-related drop in payroll tax receipts could accelerate insolvency to as soon as 2022.
Democrats will undoubtedly seek to stabilize Medicare through tax increases. The party already reduced Medicare payments to hospitals to levels that the program’s actuary has called unsustainable in Obamacare, and the Left believes government practically has a God-given right to individuals’ income.
But the prospect of a President who avoided paying $391,912 in Medicare taxes—more than twice as much as the average family retiring this year paid in Medicare taxes their entire working lives—turning around and raising Medicare taxes on others will not go over well with the American people. In short, the optics of politically hypocritical choices could narrow Biden’s policy choices significantly. (RELATED: Biden’s Climate Plan Will Lead To Higher Costs For Consumers And Households, Experts Say)
Define the Next Four Years?
Between the impact on his tax plan, Obamacare, and Medicare, Biden’s questionable tax maneuvers could come back to haunt him over the next four years. Despite the fact that the media continue to ignore this issue—asking Biden instead about his favorite ice cream flavor—sooner or later, the truth will win out.
After taking office on January 20, Biden will no doubt rely on the common presidential practice of blaming his predecessor for the problems the country faces. But when it comes to the obstacles he will face on taxes and entitlements, Joe Biden will have no one to blame but himself.
Mr. Jacobs is Founder and CEO of Juniper Research Group, and author of the book The Case Against Single Payer. He is on Twitter: @chrisjacobsHC.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.