Ask anyone, and they’ll tell you that taxes are complicated. The United States collected more than $5 trillion in tax revenues in 2018. 

But this number is prone to changes. Biden’s tax plan would create substantial reforms to the tax system, allowing the government to collect more revenues. 

But what is Biden’s tax plan? What do his proposals mean for low-income and high-income Americans? What do progressives, Republicans, and business leaders have to say? 

Answer these questions and you can come to an informed opinion about Biden’s leadership. Here is your comprehensive guide. 

The Essentials of Biden’s Tax Plan 

Joe Biden is a moderate Democrat. This means that Joe Biden’s tax plan is not as extensive as Bernie Sanders’ or Elizabeth Warren’s. 

But Joe Biden does want to increase federal revenue by a substantial amount. On the campaign trail, he expressed the desire to target the taxes of wealthy Americans and corporations. He has promised not to increase taxes on people with an annual income lower than $400,000. 

All of Biden’s tax proposals are intended to raise more than $3 trillion in revenue. The money will go toward a number of public projects, including infrastructure development. 

Individual Tax Credits 

Biden signed the American Rescue Plan Act into law on March 11, 2021. The Act responds to the COVID-19 pandemic, helping the finances of millions of Americans. One key component of the Act is that it offers a number of individual tax credits. 

An individual can claim a tax credit of $3,600 for every child they have under the age of 6. They can also claim $3,000 for every child aged 6 to 17. 

If they use child or dependent care, an individual can claim a maximum credit of $4,000. Two individuals in the same house can claim a maximum of $8,000. 

All workers under age 25 can claim an earned income credit. Prior to the act, only individuals up to the age of 19 could claim the credit.

The Act also helps with premium reductions for people on Affordable Care Act health insurance plans. They can claim a tax credit for the next two years.  

Employers may ask for tax credits for the government so they can get reimbursed for COVID-19 sick leave. Employees can get up to ten days of paid sick leave and up to 12 weeks of leave to care for their families. 

Most of Biden’s proposals for individual tax credits have been enacted. Some of his tax credits may expire during his time in office, but he may expand them for a couple of years. 

Corporate Taxes 

The current corporate tax rate is 21%. It is a flat tax, meaning that all corporations pay the same percentage on their tax forms. There is no corporate alternate minimum tax. 

Biden has proposed a number of changes. He wants to raise the tax rate for corporations to 28%. He will propose a minimum tax, requiring all corporations to pay at least 15% of their income. 

At global events, Biden has worked with world leaders to enforce a corporate minimum tax. This prevents companies from going overseas to avoid paying high taxes in the United States. 

He also plans on ending a number of incentives toward corporations. Corporations can receive tax credits for offshoring jobs and relying on fossil fuels. Removing these incentives can help reduce unemployment and fight climate change. 

The current tax rate on foreign profits is 10.5%. Biden plans to double this rate. In addition to collecting more revenue, increasing the rate will encourage corporations to prioritize American operations. 

The President would like to involve the IRS in more corporate tax decisions. He will increase their budget and allow them to track corporate reports easier. 

Most of Biden’s proposals have not been enacted. Moderates have asked the President to scale back some of his policies. One proposal would set the corporate tax rate at 26.5%. 

High-Income Taxes 

President Trump’s tax plan was designed to help wealthy Americans. He rolled back a number of taxes that reduced the income of high-income people, including capital gains taxes. His tax rate was 20%, even for people with more than half a million dollars. 

The top individual tax rate will increase to 39.6%. Wealthy individuals who try to use tax havens will receive sanctions, including those who rely on real estate loopholes. 

Other loopholes will end. The stepped-up basis loophole lets people who inherit property reduce their capital gains payments. This loophole will end entirely. 

Biden has drafted an extensive capital gains tax proposal. All capital gains for people with an income above $1 million will get taxes at normal rates. The IRS will be able to collect 43.4% of the income from capital gains. 

Wealthy Americans can receive deductions. But the new tax plan will cap their deductions at 28%. 

Most of these proposals have not been enacted. But many House Democrats are working on a formal plan that includes nearly all of the proposals. Yet the terms of each one may change so the bill can appeal to moderates and pass the Senate. 

Miscellaneous Proposals 

The carried interest loophole allows the employees of hedge funds to claim benefits on their partnerships with financial groups. The like-kind loophole allows real estate investors to avoid taxes when they exchange pieces of real estate. Biden will end both of these loopholes. 

The Medicare tax on earnings funds the Medicare program. It is currently at 3.8%, though few high-income workers pay it.

Biden will reduce deductions on the tax, especially for wealthy Americans who claim deductions for business losses. This is one federal tax increase that Biden calls for. 

Current tax policy allows the IRS to tax forgiven student loan debt. Biden hopes to exclude forgiven debts from being taxed. He would also like to offer tax credits to companies that sponsor educational scholarships. 

There are a few small tax credits for small businesses that draft retirement plans for their employees. Biden would extend these tax credits, offering workers without a 401(k) an automatic plan. A worker will receive a 401(k) as soon as they get hired, instead of signing up for one later. 

Biden hopes to expand renewable energy tax credits to homeowners and businesses. Homeowners can claim a tax credit for installing solar panels on their roofs. People who drive cars would be able to claim credits for driving an electric vehicle. 

Biden’s proposals are in various pieces of legislation. They have received less attention than his individual tax credits or corporate tax plan. But they may be prone to change as the months go by. 

Progressive Proposals 

Most progressives agree with Joe Biden’s tax plan. But they also want Biden to adopt more forceful measures when dealing with corporations and expanding access to renewable energy. 

Senator Elizabeth Warren has proposed a wealth tax. Her plan would put a 2% annual tax on households worth over $50 million, which would accompany income taxes. Households over $1 billion would have to pay a 3% annual tax. 

Senator Brian Schatz has proposed legislation for a financial transaction tax. This would be a tax on stock market trades, though it is small. Senator Ron Wyden wants a tax on tradable assets such as stocks, regardless of whether they are traded or not. 

Republican Opposition 

Most Republicans oppose any substantial tax increases. Most are in favor of President Trump’s tax plan and want to keep to it as much as possible. 

Many Republicans are pushing for a tax cut on middle-income families, in addition to wealthy ones. They hope to restore the state and local tax deduction, which allows people to pay less on federal taxes. This has support from some Democrats, so it may get passed. 

Republicans argue that the government has recently spent large amounts of money. The American Rescue Act cost trillions of dollars to implement, including through direct stimulus checks to Americans. They assert that spending more money will amount to government intrusion and depress the economy. 

The Republicans are not alone in their opposition. CEO of the Chamber of Commerce Suzanne Clark opposes Biden’s capital gains increase in particular. She argues it would kill jobs and punish businesses for investing in the economy. 

Understand the Politics of Taxes

Biden’s tax plan has several major components. The President wants to allow parents, low-income people, and young workers to claim tax credits. He wants to raise taxes on corporations, including by ending loopholes. 

He will help small companies develop tax plans so they can pay for retirement. He also wants to promote climate change policies through credits on renewable energy. 

Yet few of his proposals have been enacted. Progressives are pushing for stronger policies, while Republicans are opposing significant changes. 

Stay informed about the intricacies of tax policy. Follow our coverage for the latest developments. 

Avatar

By SARAH

Leave a Reply

Your email address will not be published. Required fields are marked *