With the election occurring a few weeks ago, there are many aspects that everyone should consider. His new tax plan is likely to come in the wake of Democratic candidate Joe Biden’s win.
The proposed changes can be a little difficult to figure out, so we have summarized some highlights for you to be aware of:
- Democratic President-elect John Biden would change and add a number of policies that would raise taxes on individuals that have income above $400,000. Biden also would like to raise taxes on corporations by raising the corporate income tax rate and imposing a minimum tax for corporations
- Revert top individual income tax rate for income above $400,000 back to 39.6% from the 37% it is under the Tax Cuts and Jobs Act.
- Enact a 12.4% Social Security tax on payroll income earned above $400,000 that would be evenly split between employers and employees. This creates a hole in Social Security payroll tax where wages between $137,700 and $400,000 are not taxed.
- Tax long-term capital gains and qualified dividends at 39.6% on income above $1 million and eliminate step-up basis for capital gains taxation.
- Phase out the qualified business income deduction for filers with taxable income above $400,000.
- Raise the maximum qualified expenses for the Child and Dependent Care Tax Credit from $3,000 to $8,000 ($16,000 for multiple dependents). Also increase the maximum reimbursement from 35% to 50%.
- Increase the corporate income tax rate from 21% to 28%.
- Create a minimum tax on corporations that would act as an alternative minimum tax for corporations with book profits of $100 million or higher. Corporations would pay the higher of their regular corporate income tax or the 15% minimum tax. This would still allow for net operating loss and foreign tax credits.
- Biden’s plan is projected to raise tax revenue by $3.3 trillion over the next decade on a conventional basis. However when accounting for economic effects, the plan would collect about $2.8 million over the next decade.
- According to the Tax Foundation’s General Equilibrium Model, the Biden tax plan would decrease the GDP by 1.62% over the long term. It would also shrink capital stock by 3.75%, reduce the overall wage rate by 1.15% and would lead to about 542,000 fewer full-time equivalent jobs.
- Without accounting for economic effects, the Biden plan would lead to about 7.7% less after-tax income for the top 1% and about a 1.9% decline in after-tax income for all taxpayers on average by 2030.
Keep in mind that this plan could and would most likely change before it would be enacted.
John P. Loughlin, Tax Staff Accountant