We all know that President Biden has only the slimmest possible majority in the United States Senate. He isn’t going to get everything he wants. Nevertheless, let’s take a look at the tax proposals he made during his campaign. The information presented here comes from The Tax Foundation’s Details and Analysis of President-Elect Joe Bidens’s Tax Proposals, October 2020 Update, as updated to reflect the results of the 2020 presidential election (Biden Tax Plan: Details & Analysis | Tax Foundation).
Biden’s tax plan would change the tax code to make it more progressive. Progressive taxation is the concept that taxpayers with higher incomes should pay more in taxes as a percentage of their income than taxpayers with lower incomes. Were all the Biden proposals enacted and effective for 2021, taxpayers in the top 1 percent would experience a reduction in their net after-tax incomes of about 11.3%. Taxpayers in the top 5 percent would experience a reduction in their net after-tax incomes of about 1.3%. Taxpayers in the 90th to 95th percentiles would experience a reduction in their after-tax incomes of about 2.2 percent. Taxpayers in the bottom 4 quintiles (80% of taxpayers) would see their after-tax incomes increase. The biggest increases would affect taxpayers in the bottom 20% with smaller increases for taxpayers in the 3 middle quintiles (20% to 80%) .
Biden’s plan would raise overall federal tax receipts by $3.3 trillion over the next decade. The plan involves an assortment of changes to payroll taxes, individual income taxes, corporate income taxes, and estate and gift taxes.
The increase in the corporate income tax from 21 to 28 percent along with a 15 percent corporate minimum tax on book profits over $100 million and tax increases on international profits would provide about 46 percent of the additional anticipated revenues (about $1 trillion over 10 years). The increased taxes on taxpayers with incomes above $400,000 are anticipated to generate another $1 trillion over 10 years. The increase in payroll taxes on individual taxpayers earning over $400,000 per year would generate about $ .8 trillion over 10 years.
Here are brief descriptions of the main components of the plan increasing the tax burden on individuals earning over $400,000.
1. Extending social security tax to apply to earnings above $400,000, half paid by employers and half paid by employees. Currently a taxpayer’s the first $142,800 is subject to social security tax.
2. The top rate for individual income taxes for taxable incomes above $400,000 reverts back to 39.6 percent as it was before the Tax Cuts and Jobs Act. Currently the top individual income tax rate is 37 percent.
3. The special rate of tax on long term capital gains and dividends is abolished for taxable incomes above $1 million.
4. The qualified business income deduction for taxpayers with incomes over $400,000 is phased out.
These are just a few of the changes President Biden has proposed. I will post additional information about some of the other components of Biden’s plans in the near future.
– Mark S Gleason CPA