Biden won’t get all his tax increases through Congress. Here’s what Morgan Stanley thinks is possible.

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President Joe Biden and First Lady Jill Biden. Alex Wong/Getty Images
  • President Joe Biden wants to pay for his infrastructure proposals with tax increases.
  • Morgan Stanley strategists predict taxes will go up, but not as much as Biden’s proposing.
  • Still, it said Americans earning over $400,000 should expect to see their income tax rate increase.
  • See more stories on Insider’s business page.

President Joe Biden wants to increase taxes on some of the country’s highest earners to pay for affordable childcare, paid family leave, and free community college.

But how much will taxes actually go up? Morgan Stanley thinks Biden will only get some of what he’s asking for.

The investment bank cited comments from moderate Democratic Sen. Joe Manchin of West Virginia in predicting that a 25% corporate tax rate – not 28%, as Biden proposed – is possible. And while the income rate increasing to 39.6% for those earning over $400,000 remains possible, it said, an increase to the capital gains rate would be 30% or below, not the 39.6% currently proposed.

Manchin has signaled he wants a corporate tax rate closer to 25%, while Axios reports that some Senate Democrats are also currently resistant to potential tax hikes.

The bank also said that extending a 3.8% Obamacare tax to high earners is likely possible, but eliminating the step-up basis, which allows valuable assets to be passed along without taxes on any of its gains, may not be.

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Chart via Morgan Stanley. Morgan Stanley Research

Increased funding for ramped-up IRS enforcement – which would target the wealthiest Americans, and ensure they’re paying taxes owed – is possible, according to Morgan Stanley. That measure alone could bring in an additional $700 billion over the next decade, according to the Department of Treasury. But, as Insider’s Ayelet Sheffey reported, that boost in funding would likely mean the wealthiest would still be hiding hundreds of billions every year.

Since neither eventual bill is likely to garner GOP support, the bank said a package is likely headed for party-line reconciliation – and require some negotiation.

Still, Morgan Stanley’s base case sees Congress passing about $4 trillion in spending, whether it’s in one package or two, essentially the total that the White House wants.

“Look, I’m not out to punish anyone. But I will not add to the tax burden of the middle class of this country,” Biden said on Wednesday evening in his first joint address to Congress. “They’re already paying enough. What I’ve proposed is fair. It’s fiscally responsible.”