While it may be difficult to overlook the unusual disruption caused by the 2019 coronavirus pandemic (COVID-19), Americans across the country are just 72 days away from their local polling booths or mailing in their ballot papers for election day. As we learned from 2016, a lot can change in a matter of weeks. But as things stand now, almost all polls suggest that nominated Democratic Party Joe Biden will oust President Donald Trump for the presidency in November.
While much remains to be decided – 10 weeks is an eternity in the political landscape – Biden’s leadership has brought its policy into greater focus in the elections. In particular, voters and economists are beginning to complain about Biden’s tax plan, which aims to increase between $ 3.3 trillion and $ 3.7 trillion in additional decades over additional federal tax revenues if they are fully implemented in 2021.
Here are the 12 major tax changes the former vice president is asking for.
Joe Biden listens to former President Barack Obama. Image Source: Official White House Photo by Pete Souza.
1. An increase in the corporate tax rate
Probably the biggest change in Donald Trump’s Cuts and Jobs Act (TCJA) feature would have been the undoing of the tax cuts passed on to corporations. Under the TCJA, the peak marginal corporate tax rate was reduced from 35% to 21%. Under the Biden tax plan, the corporate tax rate would be increased to 28%. You will notice that this is still well below where it was during the Obama presidency.
Increasing the corporate tax rate to 28% should account for about a third of the $ 3.3 trillion to $ 3.7 trillion in gross additional revenue over the next decade.
2. A minimum tax on business income
Call this the Amazon rule if you will, but Biden’s tax plan calls for a minimum tax of 15% on companies with $ 100 million or more in annual net income that pay little or no federal income tax. In the case of Amazon, carried out losses from the years when it was unprofitable, along with the Trump tax cuts, it reported $ 11.2 billion in profits in 2018 without paying a single cent in federal income tax. Biden wants to eliminate the world’s Amazon from using tax breaks to avoid paying federal taxes.
The Tax Foundation notes that this minimum tax is set as an alternative minimum tax, where companies will pay the greater of their normal corporate tax as the 15% minimum income tax. However, companies will still be allowed to carry forward net business losses as well as borrow on foreign tax credit.
Image Source: Getty Images.
3. Double the GILTI tax rate on foreign subsidiaries
Biden’s tax plan would also double the tax rate on Global Intangible Low-Tax Income (GILTI) earned by foreign branches of U.S. companies. Currently set at 10.5% below the TCJA, GILTI’s tax rate would increase to 21%.
The purpose of GILTI, as defined by the TCJA, was to ensure that multinational corporations specifically do not seek tax havens for their mobile capabilities (e.g., patents and copyrights) to avoid U.S. taxes. Biden’s plan will simply move the needle further to ensure that the US gets its fair share of corporate profits that are claimed in countries with more prevalent peaks in corporate tax rates.
4. Imposing a fee for financial risks on large banks
Biden called for the introduction of a fee for financial risks on large banks (that is, those with more than $ 50 billion in assets), which was initially championed by former President Barack Obama. We would pay this fee based on the insured liabilities of a financial institution and would provide the Federal Deposit Insurance Corporation (FDIC) with a pool of funds to use in carrying out the orderly liquidation of a failed financial institution.
In fact, these fees would ensure that bank customers are not in line for these fees. Instead, a collective group of large banks would pay into a fund each year to cover all FDIC supervision costs.
Image Source: Getty Images.
5. An increase in the marginal tax rate for top earners
Biden would love to see America’s richest workers open their wallets. He would do this by increasing the upper marginal income tax cut from 37% to 39.6%. As you may recall, in 2018, the TCJA lowered the top marginal bracket from 39.6% to 37%.
For the 2020 tax year, this upper marginal rate of application on earned income is above $ 518,400 for single filers and more than $ 622,050 for married couples filing together.
6. Reset the payment tax to the top 1%
In addition to raising the corporate tax rate, the biggest revenue generator would be the creation of a donut hole in Social Security’s tax rate of 12.4% on earned income.
By 2020, all earned income (salary and salary, but not investment income) between $ 0.01 and $ 137,700 will be subject to the 12.4% tax rate that Social Security finances. About 94% of workers will pay into Social Security this year with every dollar they earn. By comparison, the other 6% of workers who make more than $ 137,700 by 2020 will see their income above $ 137,700 exempt from Social Security taxes. Between 1983 and 2016, balloon fat released the amount of profit from a little over $ 300 billion to $ 1.2 trillion.
Under the Biden tax plan, a donut hole would be made between $ 137,700 and $ 400,000, where this exemption would remain in place. However, for earned income above $ 400,000, the 12.4% income tax would be re-introduced. It is estimated that this would increase between $ 797 billion and $ 1.04 trillion in the next decade.
Image Source: Getty Images.
7. Raise the capital gains tax on filers with incomes above $ 1 million
The rich would also have higher tax rates for capital gains under Biden’s proposal.
Currently, short-term capital gains (assets held for 365 or less days) are taxed at the regular income tax rate, while long-term gains are taxed at 0%, 15% or 20%, depending on the income of a filer. The 20% rate applies to single and married couples filing together with earned income above $ 441,450 and $ 496,600, respectively, in the tax year 2020. It should be noted that the Net Investment Income Tax (NIIT) also includes a check of 3.8% applied to capital gains for individuals and married couples with more than $ 200,000 and $ 250,000 in income, respectively.
Biden’s proposal requires filers with more than $ 1 million in income to pay regular tax rates on their profits, regardless of how long they have held an asset. This would imply 39.6%, plus the NIIT, for a total tax rate of more than 43%.
8. Eliminate the stacked base
To get away from the previous point, Biden wants to put an end to the step-up base loophole that favors the well-to-do.
An accrual basis refers to the cost basis of assets or property transferable to an heir upon death. If, for example, an individual bought a home for $ 300,000 but it was worth $ 600,000 at the time of her death, her heir would pay capital gains on anything more than $ 600,000 if the home was ever sold. This rise in the cost base has been a cost to the federal government for some time, given that it discourages people from making capital gains.
If Biden’s proposal were to become law, heirs would not “inherit” an accrued cost base, which would eliminate the accumulated capital gains tax in the coming decades.
Image Source: Getty Images.
9. Limit itemized derivatives
A ninth change that Biden is asking for is a cap on specified distractions of 28%. This means that for every dollar of specified tax return, including charitable contributions, a taxpayer or couple filing together would receive only a maximum benefit of $ 0.28. This limit of 28% would be true even if a filer pays a higher marginal tax rate.
If this sounds familiar in any way, it’s because the 28% itemized deduction threshold was championed by President Obama in the 2010s, as well as supported by his then vice president Joe Biden.
10. Phase out derivatives from small businesses over $ 400,000
The Democratic presidential nominee also wants small business income deductions to exceed $ 400,000.
As of now, qualified throughput business deductions, which allow small business owners to deduct up to 20% of their business income under the TCJA, will be limited to $ 163,300 for single filers and $ 326,600 for joint filers by 2020. For individuals and married couples who above these thresholds, there are a plethora of rules that determine whether you are allowed to take Qualified Business Income (QBI) allowances.
Biden’s plan aims to simplify this by keeping QBI deductions in place for those with less than $ 400,000 in income, but inventing throughput deductions for those with more than $ 400,000 in income.
Image Source: Getty Images.
11. Tax credit for institute first time homeowners and tenants
Keep in mind that Biden does not include his tax plan just to raise more money. It is also designed to give people breaks where he finds breaks to be thankful.
In May, Biden discussed the idea of providing new homebuilders with a tax credit of up to $ 15,000. Known as the first credit transfer for money to pay, it would be the first time homebuilders would help cover the initial costs and fees associated with buying a home.
In addition, Biden wants to offer section 8 headgear to eligible families so that they do not have to spend more than 30% of their income on hair.
12. Raise the existing tax rate for children and dependent care
The 12th and final amendment would include increasing the existing tax credit for children and dependent care.
Under the TCJA, parents of children under the age of 13 as well as those caring for a disabled dependent living in their household are eligible for a credit based on their expenditure on caring for a child with a dependent disability. This credit is equal to 35% of up to $ 3,000 in eligible expenses for one addict or $ 6,000 for two or more addicts. This effectively means that this tax is worth up to $ 2,100 under the TCJA.
With Biden’s plan, maximum allowable expenses would increase to $ 8,000 for individuals and $ 16,000 for multiple dependencies, with the reimbursement rate adjusted to 50%. In other words, this credit could be worth up to $ 8000 and also include people who have no tax claim.
The makeup of Congress after the November election will have a big impact on the question of whether Biden’s tax plan has a shot at passing in the Senate. But anyway, it’s important to understand how a possible Joe Biden presidency can affect your wallet.
