As the presidential election rapidly approaches, we have unpacked the proposed “Biden Tax Plan”. This outline is designed to be a simple overview of provisions and does not provide planning technics to combat such provisions. We will publish additional commentary and planning strategies should these provisions appear to become law.
This is not an endorsement for either candidate but instead intended to provide information regarding the potential tax policy if Joe Biden wins the presidential election. This outline does not compare, contrast or provide any commentary on the current “Trump Tax Plan” enacted into law. Since, tax policy is enacted by Congress the outline provided below is speculation and hinges on the control of the House and Senate.
We have developed this overview from information provided by the Tax Foundation (https://bit.ly/3dXj2CO ) , the Democratic Party 2020 Platform (https://bit.ly/31HBcDz ) and the information distributed by the Joe Biden campaign (https://bit.ly/35sbMLk #). We encourage every taxpayer to read the information contained in these documents to obtain a better understanding under these proposed policy changes. The House Ways and Means (the tax committee of the House of Representatives and currently controlled by the Democrats) has not published any proposal of policy change or position at this time.
Individual Tax Proposal
- Imposes a 12.4 percent Old-Age, Survivors, and Disability Insurance (Social Security) payroll tax on income earned above $400,000, evenly split between employers and employees.
- Reverts the top individual income tax rate for taxable incomes above $400,000 from 37 percent under current law to the pre-Tax Cuts and Jobs Act level of 39.6 percent.
- Tax long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent on adjusted gross income above $1 million.
- Eliminates step-up in basis for capital gains, Currently, when assets are inherited the beneficiary receives them at the current fair market value. This policy would impose a tax on the beneficiary when selling appreciated assets which were inherited.
- Limit the tax benefit of itemized deductions to 28 percent of value for those earning more than $400,000, which means that taxpayers earning above that income threshold with tax rates higher than 28 percent would face limited itemized deductions.
- Restores the Pease limitation on itemized deductions for taxable incomes above $400,000. The Pease limitation is law which reduces the total amount of itemized deductions as income rises.
- Phases out the qualified business income deduction (Section 199A also known as the 20% deduction) for filers with taxable income above $400,000.
- Expands the Earned Income Tax Credit (EITC) for childless workers aged 65+
- Provides renewable-energy-related tax credits to individuals.
- Expands the Child and Dependent Care Tax Credit (CDCTC) from a maximum of $3,000 in qualified expenses to $8,000 ($16,000 for multiple dependents) and increases the maximum reimbursement rate from 35 percent to 50 percent.
- For 2021 and as long as economic conditions require, increases the Child Tax Credit (CTC) from a maximum value of $2,000 to $3,000 for children 17 or younger, while providing a $600 bonus credit for children under 6. The CTC would also be made fully refundable, removing the $2,500 reimbursement threshold and 15 percent phase-in rate.
- Reestablishes the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market. Biden’s homebuyers’ credit would provide up to $15,000 for first-time homebuyers.
- Expands the estate and gift tax by restoring the rate and exemption to 2009 levels. This would affect individual estates of more than $3.5 million (currently around $11.3 million) and raise the top estate tax rate on the excess to 45% from 40%.
- We assume most references to the $400,000 income threshold applies to married couples and effectively would be half that amount for “unmarried” taxpayers.
Business Tax Proposal
- Increases the corporate income tax rate from 21 percent to 28 percent
- Creates a minimum tax on corporations with book profits of $100 million or higher. The minimum tax is structured as an alternative minimum tax—corporations will pay the greater of their regular corporate income tax or the 15 percent minimum tax while still allowing for net operating loss (NOL) and foreign tax credits
- Doubles the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of US firms from 10.5 percent to 21 percent.
- In addition to doubling the tax rate assessed on GILTI, Biden proposes to assess GILTI on a country-by-country basis and eliminate GILTI’s exemption for deemed returns under 10 percent of qualified business asset investment (QBAI).
- Establishes a Manufacturing Communities Tax Credit to reduce the tax liability of businesses that experience workforce layoffs or a major government institution closure
- Expands the New Markets Tax Credit and makes it permanent.
- Offers tax credits to small business for adopting workplace retirement savings plans.
- Expands several renewable-energy-related tax credits, including tax credits for carbon capture, use, and storage as well as credits for residential energy efficiency, and a restoration of the Energy Investment Tax Credit (ITC) and the Electric Vehicle Tax Credit.
- End tax subsidies for fossil fuels.
- Impose a new 10 percent surtax on corporations that “offshore manufacturing and service jobs to foreign nations in order to sell goods or provide services back to the American market. This surtax would raise the effective corporate tax rate on this activity up to 30.8 percent.
- Establishing an advanceable 10 percent “Made in America” tax credit for activities that restore production, revitalize existing closed or closing facilities, retool facilities to advance manufacturing employment, or expand manufacturing payroll.
Projected Impact
Based on the modeled impact of these provisions, tax revenue would be increased by around $3 trillion over the next ten years. The total after tax income would reduce by almost 2% distributed more heavily to the top 10% income group. The bottom 20% of income earners will experience a .2% reduction in after-tax income. The Gross Domestic Product (GDP) is projected to decrease by 1.62% over this period.
If you have any questions regarding the proposed tax policies or the impact on your specific situation, please do not hesitate to contact us at (912) 353-7800