“Biden has not released a single formal tax plan, but he has proposed many tax changes and increases connected to spending proposals related to issues like climate change, infrastructure, health care, education, and research & development. Most of these proposals center around raising income taxes on high earners as well as on businesses. Selected highlights of Biden’s tax increases include:
- Repealing the Tax Cuts and Jobs Act (TCJA) individual income tax reductions for those earning over $400,000 and restoring the top marginal income tax rate to 39.6 percent from today’s 37 percent. The Section 199A deduction would also be phased out for those earning over $400,000.
- Taxing capital gains at ordinary income tax rates—up from a top rate of 23.8 percent today—for those earning over $1 million. Biden would also eliminate step-up in basis for inherited assets with capital gains, instead taxing those gains at death.
- Capping the value of itemized deductions to 28 percent for those in higher marginal tax brackets and restoring the Pease limitation on itemized deductions for those with taxable income above $400,000.
- Raising the corporate income tax from 21 percent to 28 percent.
- Imposing a 15 percent minimum book tax on corporations with $100 million or greater in income.
- Doubling the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of U.S. firms, from 10.5 percent to 21 percent.
- Imposing the 12.4 percent Social Security payroll tax on wage and self-employment income earned above $400,000.
Using the Tax Foundation General Equilibrium Model, we estimate that Biden’s tax proposals would raise about $3.8 trillion over 10 years. The plan would also reduce long-run economic growth by 1.51 percent and eliminate about 585,000 full-time equivalent jobs.
While Biden’s tax plan would make the tax code more progressive, it would reduce after-tax income for filers across the income spectrum by reducing the incentive to work and invest in the United States. On average, taxpayers would see a 1.7 percent reduction in after-tax income on a conventional basis by 2030, ranging from a 0.7 percent decline for those in the bottom quintile of the income distribution to a 7.8 percent decline for earners in the top 1 percent.
A prospective Biden administration will have to consider how fast and how far to enact the variety of tax increases that the candidate has proposed so far, as the American economy is still struggling with the coronavirus pandemic and economic hardship. If enacted too fast, tax hikes may undercut a nascent economic recovery next year. Tentatively, it seems Biden may be open to delaying some of his tax proposals until economic conditions improve. However, additional details about what a Biden administration would want to see before entertaining tax hikes would increase policy certainty moving forward if he won the election.
In addition to tax increases, Biden proposes a variety of tax incentives that are meant to encourage specific kinds of activity, ranging from carbon capture and storage to an $8,000 tax credit for childcare. In addition to those tax credits, he proposes:
- A restoration of the electric vehicle tax credit
- Tax credits for residential energy efficiency
- Making permanent the New Markets Tax Credit
- Establishing a Manufacturing Communities Tax Credit
- A renter’s credit to reduce rent and utilities to 30 percent of income
- An expanded Earned Income Tax Credit (EITC) for those older than 65
- A $5,000 tax credit for informal caregivers
- Expanding the Low-Income Housing Tax Credit (LIHTC)
- A reinstated Solar Investment Tax Credit (ITC)
- A tax credit for childcare facilities built by businesses
- Providing a 26 percent tax credit to match traditional retirement contributions as a replacement to deductibility of those contributions (Roth treatment remains unchanged)
- Establishing a First Down Payment Tax Credit of up to $15,000
Despite these tax credit proposals, Biden has not gone as far as his running mate, Sen. Kamala Harris (CA), when it comes to expanding the generosity and eligibility of major tax credits such as the Child Tax Credit (CTC) and the EITC. Harris has endorsed a plan that would cost over $2.7 trillion over 10 years, nearly matching the revenue raised from all of Biden’s tax increases. House Democrats have also endorsed more generous tax credits to help vulnerable households, which may be an alternative starting point for Biden.
Biden’s tax vision is twofold: higher taxes on high-income earners and businesses paired with more generous provisions for specific activities and households. Given the current economic landscape, as households and businesses are still reckoning with the economic fallout of the coronavirus pandemic, the former part of the Democratic nominee’s tax vision may have to be put on hold if he wins the election.”
The above was quoted from the “The Tax Foundation” a non profit tax foundation research center.
OTHER BIDEN CONSIDERATIONS:
Biden calls for lowering the estate tax exemption to 5 Million or so down from $11,580,000 now. Currently the tax rate is 40% and there is no mention weather that will remain the same.
He is calling for a minimum tax of 15% on large corporations meaning even if they would ordinarily have no tax due they still would pay the minimum tax.
He wants to phase out the 20% qualified business income deduction which was to allow businesses other than C Corporations (Filing 1120 IRS Forms) a business deduction because they are taxed at the higher personal income tax rates.
He would also like to see lower and middle income individuals pay less tax Among Biden’s proposals for doing this: Allowing workers age 65 and older to claim the earned income tax credit. Giving new breaks to first-time home buyers and renters. Upping the credit for child and dependent care expenses to $8,000 per child ($16,000 for two or more children). Creating a new credit of up to $5,000 for family members who provide long-term care to elderly or disabled relatives. Increasing the health premium tax credit for individuals who buy health insurance through an exchange by passing the credit on the cost of a gold-level health plan. Forgiving student loan debt and excluding the forgiven amount from tax.
Because he has yet to release any formal Tax Plan, how to pay for these recommendation is still a question.
The Tax Cuts and Jobs Act that went into effect September 2017 was one of the largest tax reform acts in our nation’s history. The purpose was to stimulate the economy and put men and women back to work. It was extremely effective in accomplishing this primary purpose. Prior to COVID-19 arriving on the scene we had more than doubled the economic expansion (GDP) of the Obama/Biden eight years. Our nation experienced the lowest unemployment rates in history among every demographic measurement. Multinational corporation started repatriating dollars back into business expansion in the United States creating hundreds of thousands of new jobs.
What is good for the economy?
- Less government regulation President Obama had a great idea when he said, “Lets put men and women to work on shovel ready jobs” He was talking about the detrition of our roads and bridges throughout the nation. There is a need so let’s put people to work fixing this need. Congress even supported him with over a trillion in appropriations to get the job done, however, the president soon learned that “Shovel ready jobs were not so shovel ready after all”. Why, because of intrusive government regulations it took as much as 18 years to get the permitting completed, just to repair our infrastructure items of roads and bridges. So during President Obama’s administration not one dollar was spent on shovel ready jobs.
President Trump coming from the development and construction industry immediately identified this problem and started repealing many intrusive government regulations. The first infrastructure bridge was rehabbed in just three years and he said that was too long and he is working to get the time line to just one year.
- Less corporate tax Many corporations are multinational or global not United States only. Take Apple for example, more than 60% of its revenue comes from outside the United States. Apple can choose to headquarter in a country like Ireland and be taxed at 15% or bring those dollars back to the US and be taxed at 35% (the rate prior to the Tax Cuts and Jobs Act). Where should they deploy those profits, well not in the United Sates and pay more than double the tax rate. So our tax laws can influence where companies deploy their profits, hire employees, build infrastructure and expand their business activities.
- Less individual income tax When the individual tax rates are less, individuals will spend more on the things they find important in their lives. Dollars spent on goods and services stimulate the economy and expansion of the economy puts more people to work cycling more dollars through more hands and taxing more individuals. Those that have excess can save and invest for the future, again stimulating the economy making more dollars available to more companies for more expansion putting more people to work cycling more dollars and taxes more entities and individuals.
- Business investment incentives Lets look at depreciation for example, depreciation is the writing off or expensing of an item purchased by the business. It used to be called writing off an item over its” economic useful life” and of course the congress and the IRS were to determine this economic useful life time line. Bonus depreciation was part of the Tax Cuts and Jobs Act and bonus depreciation allows a business to write off 100% of the cost of new or used equipment placed in service by the company if they wished to.
Why would bonus depreciation be a good incentive? Lets look at an example: Lets assume there are two partners in the 35% tax bracket, (Bracket prior to Tax Cuts and Jobs Act was 39.6%). They make $2 million in net profit and split evenly $1 million each less tax at 35% leaving $650,000 each. They need a new piece of equipment that will allow them to hire 2 operators and 3 salesmen thereby increasing their net profit to $3 million next year. The cost of this equipment is $1million and after talking it over they are ready to commit which would reduce the amount of net profit to just $1 million to split $500,000 each or after tax $ $375,000 each. Now they run this by their tax advisor and he says, “guys you can’t do that”. They say why not, and he says because I have to depreciate this equipment over 10 years $100,000 per year. That means after the purchase of $1 million you only have $1 million of your profit left in the bank, however, you are going to be taxed on $1,900,000 of profit and at 35% the tax bill is $665,000. $1 million after purchase less $665,000 is $335,000/2 is $167,500 each. Now they say we were ready to take the chance with this new equipment and reduce our take home from $650,000 to $375,000, however, it is not worth the risk to reduce our take home to $167,500. They could have borrowed the money to pay for the equipment, thereby, creating debt they may not want and paying interest they did not need. So what happened, they do not by the equipment, they do not hire two operators and 3 salesmen, they did not expand the economy increasing the profits of the company that manufactures the equipment (lost revenue tax) the manufacturer may not have to hire more employees, certainly a bad accounting rule created a lack of economy expansion. Why make the tax and bookkeeping process hard, why have three sets of books; accounting, cash flow and tax flow books. Why not instead let cash flow and tax flow be the same. If I spend $1million on equipment then allow me to deduct the $1million.
Above is just one example of many BAD accounting rules that can affect the economy.
I wish every politician had an educational background in economics and taxation, every few if any do and so it is easy to promise many things they will not be able to deliver or worse deliver things that are harmful to the economy for their lack of knowledge. You can not throw a rock in a pond without creating the ripple effect, likewise when you create new laws, they too create a ripple effect.