On August 20, former United States Vice President Joe Biden formally accepted the Democratic nomination for US President. However, questions about Biden’s tax proposals, such as when and how fast he would push for tax hikes, remain to be clarified heading into the fall campaign.
Complicating matters, the US has recently spent trillions of dollars in response to the consequences resulting from the coronavirus pandemic, and the US is likely to spend trillions more. Someone has to bear the cost of all this spending and increased taxes appear to be the answer.
Biden’s proposed tax plan has two major components: higher taxes on both high-income individuals and businesses, coupled with more generous tax credits for specific activities and households. However, given the current economic landscape, with households and businesses still reckoning with the economic fallout of the coronavirus pandemic, Biden’s proposed tax changes may have to be significantly modified if he wins the election.
Using the Tax Foundation General Equilibrium Model, it is projected that Biden’s tax proposals would raise about $3.8 trillion over 10 years. The plan would also reduce long-run economic growth by 1.51 percent and eliminate about 585,000 full-time equivalent jobs.
While Biden’s tax plan would certainly make the US tax code more progressive, Tax Foundation analysis shows Biden’s plan would reduce after-tax incomes for filers of various incomes by reducing the incentive to earn and invest in the United States. On average, taxpayers would see a 1.7 percent reduction in after-tax income by 2030, ranging from a 0.7 percent decline for those in the bottom quintile of the income distribution to a 7.8 percent decline for earners in the top 1 percent.
A prospective Biden administration will have to consider how fast and how far to enact the variety of tax increases that have been proposed so far, as the American economy is still struggling with the coronavirus pandemic and economic hardship. If enacted too fast, tax hikes may undercut any economic recovery next year. Initially, it appears Biden may be open to delaying some of his tax proposals until economic conditions improve. However, additional details about what a Biden administration would want to see before entertaining tax hikes would increase policy certainty moving forward if he were to win the November election.
Biden has not released a single formal tax plan, but he has proposed many tax changes and increases connected to spending proposals related to issues like climate change, infrastructure, health care, education, and research and development. Most of these proposals center around raising income taxes on high earners as well as on businesses. Selected highlights of Biden’s tax increases include:
Individual Tax Changes:
Business Tax Changes:
Estates and Gifts
What Should You Do?
Whether you are an individual, the owner of a closely held business, or an adviser to such a business and its owners, now is the time to determine how Mr. Biden’s tax plans may impact you and your business. You will want to calculate the economic and tax consequences that may reasonably be expected as a result of a Biden victory and the enactment of the foregoing proposals.
There’s a lot to think about, and there is a lot for you to consider and do before the year-end.