Details And Analysis Of President Joe Biden’s Tax Proposals: Highlights

Key Findings

  • President Joe Biden’s tax plan he released before the election, would enact several policies that would increase taxes on individuals with income above $400,000. This includes raising individual income, payroll taxes, and capital gains. He would also increase corporations’ taxes by imposing a corporate minimum book tax and increasing the corporate income tax rate.
  • Biden’s plan would increase tax revenue by $3.3 trillion over the next decade on a conventional basis. The project would collect about $2.8 trillion the next decade when accounting for macroeconomic feedback effects. It is lower than we initially estimated due to the coronavirus pandemic and economic downturn’s revenue effects and new tax credit proposals introduced by the Biden campaign.
  • The Biden tax plan would lessen GDP by 1.62 percent over the long term, according to the Tax Foundation’s General Equilibrium Model.
  • Regularly, the Biden tax plan by 2030 would take to about 7.7% less after-tax income for the top 1% of taxpayers and about a 1.9% decline in after-tax income for all taxpayers on average.

Details of the Plan

  • On income earned above $400,000, imposed 12.4% on Survivors, Old-Age, and Disability Insurance (Social Security) payroll tax, and divided equally between the employees and employers. It would create a “donut hole” in the current Social Security payroll tax, where compensations are not taxed salaries between $137,700, the current wage gap, and $400,000.
  • Reverts the highest tax rate on individual income from 37% to the taxable incomes above $400,000 to the pre-tax reform and jobs Act standard of 39.6% on personal income above $400000 under the new legislation.
  • Taxes long-term capital gains and eligible dividends at the usual income tax rate of 39.6% on compensations above $1 million and eliminates step-up in basis for capital gains taxation.
  • Caps the tax benefit of the itemized deductions to 28% of the value of those receiving beyond $400,000, which means that taxpayers receiving more than 28% of the tax threshold would face limited itemized deductions.
  • Reimpose the Pease limitation on itemized deductions for taxable incomes beyond $400,000.
  • Phases out the eligible business income deduction (Section 199A) for filers with taxable income beyond $400,000.
  • Extends the Earned Income Tax Credit (EITC) for childless employees aged 65+; offers to individuals the renewable-energy-related tax credits.
  • Extends the Child and Dependent Care Tax Credit (CDCTC) from a limit of $3,000 in taxable costs to $8,000 ($16,000 for multiple dependents) and raises the maximum refund rate from 35% to 50%.
  • For 2021, and as long as the economic state requires, the Child Tax Credit (CTC) will expand from a limit of $2,000 to $3,000 for children 17 or younger, thus offering a $600 bonus credit to the children under six years of age. The CTC will now be completely refundable, eliminating the $2,500 refund threshold and the 15% phase-in rate.
  • Restores the First-Time Home Buyers’ Tax Credit, which was initially established after the Great Recession to support the housing market. Biden’s homebuyer credit will include up to $15,000 for first-time homebuyers.
  • Extends the estate and gift tax by bringing back the cost and exception to 2009 levels.

The Biden Proposal also contains the following planned corporate tax changes:

  • Increment the corporate income tax rate from 21% to 28%.
  • Creates a minimum levy for companies reporting book income of $100 million or more. The minimum tax is designed as an additional minimum tax—corporations would pay more than an average corporate income tax or 15% minimum tax and qualify for net operating loss (NOL) and international tax allowances.
  • Binate the tax rate on the Global Intangible Low Tax Profits (GILTI) gained by US companies’ overseas subsidiaries from 10.5% to 21%.
  • In addition to doubling the tax rate levied on GILTI, Biden seeks to measure GILTI on a country- by-country basis and to abolish the GILTI allowance for considered returns of less than 10% of the eligible investment in business properties (QBAI).
  • Establishes an Industrial Communities Tax Credit to minimize the tax burden of firms suffering layoffs or the closing of large government agencies
  • Extends and makes the Emerging Markets Tax Credit permanent.
  • Provides small business tax credits for the implementation of occupational retirement savings programs.
  • Extends many renewable energy-related tax credits, including carbon capture, utilization, and recycling tax credits and home energy efficiency credits, and restores the Energy Expenditure Tax Credit (ITC) and the Electric Vehicle Tax Credit. The Biden plan would have brought an end to tax incentives for fossil fuels.

Summary

As stated by the tax plan he unveiled before the election, President Joe Biden will increase taxes on labor revenue, investment income, and company income to those making more than $400,000.
Among other changes, the bill imposes a “donut hole” payroll tax on wages above $400,000, repeals TCJA income tax cuts for individuals with net income above $400,000. It raises the corporate income tax rate to 28%.
Also, Biden has introduced several additional tax incentives or extensions of current credits to help raise after-tax revenue for low-income households. Biden’s onshoring initiative raises the taxation of overseas earnings while offering loans to boost onshore economic development. Biden’s proposal would decrease the economy’s long-term size by 1.62% due to higher marginal tax rates on labor and resources.
Biden’s tax proposal will collect around $3.33 trillion regularly over the next decade and $2.78 trillion on a decrease in the scale of the U.S. economy. Although taxpayers in the bottom four quintiles will see a rise in post-tax income in 2021 primarily due to the temporary extension of the CTC, by 2030, the scheme will lower post-tax payment at all income groups.

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