This article was put together by Noah G. Buhle, a law clerk with our firm and a Senior at Marquette University Law School, in Milwaukee, Wisconsin. Thanks for Noah’s great effort and nice summary!
Biden Tax Plan and Ramifications
President Joe Biden, in his campaign and in several speeches after being inaugurated, has stated his intent to change the tax code. One common theme of his statements has been that the average lower and middle class American will not see any increase in taxes, with taxes only being increased for those who earn more than $400,000 per year. But the question remains as to what the tax increases will look like, and how individuals and businesses will be affected after the changes, if passed, are implemented.
The goal of the Biden tax plan is to increase funds to pay for a multi-pronged infrastructure plan and an expansion of the social safety net for lower and middle class families. Three different but related plans have been proposed. Each plan focuses on different aspects of America’s economy, but they all have the ultimate aim of revising the tax code.
American Families Plan (proposed)
The American Families Plan is a plan which has been proposed by Biden that focuses on increasing tax credits for lower and middle class families and expanding access to free education. If this plan were enacted, the following would occur:
- Households which make more than $800,000 a year would have their tax contributions increase by about $213,000, resulting in a decrease of about 11% of their after-tax income.
- Households which earn at least $3.6 million a year would have their tax contributions increase by about $1.6 million, resulting in a decrease of about 17% of their after-tax income.
- The top marginal income tax rate would increase from 37% to 39.6%.
- It imposes a tax on unsold stock and other assets at death instead of allowing them to descend to beneficiaries tax-free.
- The top tax rate on long-term capital gains would increase to a combined 43.4%, up from the current 23.8% for taxpayers with more than $1 million of annual income from capital gains.
- It extends recent temporary increases to the child tax credit, the child and dependent care credit, and the earned income tax credit.
- Households earning less than $26,000 per year will receive an average tax cut of about $600, raising their after-tax income by about 4%.
- Households earning between $52,000 and $92,000 per year will receive an average tax cut of about $300, raising their after-tax income by about 0.5%.
- Families with kids could see a tax cut increase to nearly $3,200.
- It provides free education from pre-kindergarten for three- and four-year-olds through two years of community college.
American Jobs Plan (proposed)
The American Jobs Plan is a plan which Biden proposed that focuses on increasing the tax burden on corporations that do business in the United States. If this plan were enacted, the following would occur:
- The corporate income tax rate would increase from 21% to 28%.
- The current exemption for the first 10% return on foreign investment would be repealed.
- The preferential tax rate of half the 21% domestic rate on the remainder of foreign profits would end, resulting in a minimum 21% income tax rate on multinational corporations.
For the 99.5% Act (proposed)
The For the 99.5% Act is a plan proposed by Senators Bernie Sanders and Sheldon Whitehouse. Its goal is to reduce the amount that is exempted from estate taxes in large estates and gifts. While this plan has not been proposed by Biden, it is considered by some to be part of the Biden Tax Plan. If this plan were enacted, the following would occur:
- The estate, gift, and generation skipping tax exemption $11.7 million would be reduced to $3.5 million in the case of estate taxes and $1 million in the case of gifts.