President-elect Joe Biden's tax policy, initially released in Spring 2020 and subsequently modified, is a subject of significant scrutiny and analysis. This two-part series aims to provide a detailed summary of the updated Biden-Harris tax plan while delving into the political feasibility of implementing these policies through Congress.
Part 1: Key Proposals in Biden's Tax Policy
President-elect Biden's tax policy encompasses a range of proposals, primarily focusing on (1) raising taxes on high-income households, (2) imposing higher taxes on corporations, and (3) offering expanded tax breaks to low-income households, specific companies, and green energy initiatives. Let's delve into the key provisions of Biden's tax policy.
Raising Taxes on High-Income Households
- Individual Income Tax Rate:
- Raises the top individual income tax rate from 37% to 39.6% for taxable income above $400,000.
- Social Security Payroll Tax:
- Imposes a 12.4% Social Security payroll tax on income earned above $400,000, shared equally between employers and employees.
- Capital Gains and Dividends:
- Increases long-term capital gains and qualified dividends rates to 39.6% on income above $1 million.
- Itemized Deductions:
- Limits itemized deductions for taxable incomes above $400,000, including a cap of 28%.
- Section 199A Deduction:
- Erodes the Section 199A deduction for taxable incomes above $400,000.
- Estate and Gift Taxation:
- Expands estate and gift taxation by applying 2009 rates, lowering exemption amounts, and eliminating the step-up in basis.
Imposing Higher Taxes on Corporations
- Corporate Tax Rate:
- Raises the corporate tax rate from 21% to 28%.
- Minimum Tax on Corporations:
- Imposes a 15% minimum tax on corporations with profits of $100 million or more.
- Global Intangible Low-Tax Income (GILTI):
- Doubles the tax rate on GILTI earned by foreign subsidiaries controlled by U.S. businesses.
- Offshore Production Surtax:
- Imposes a 10% surtax on corporations producing goods offshore and selling them in the U.S. market.
- End of Fossil Fuel Subsidies:
- Ends tax subsidies for fossil fuels.
Expanded Tax Breaks to Low-Income Households
- Child Tax Credit:
- Increases Child Tax Credit from $2,000 to $3,000 and introduces a $600 bonus credit for children under 6.
- Child and Dependent Care Tax Credit:
- Expands the Child and Dependent Care Tax Credit by allowing maximum qualified expenses of $8,000 and raising the reimbursement rate to 50%.
- Earned Income Tax Credit (EITC):
- Broadens the scope of the EITC to childless workers over age 65.
- First-Time Home Buyer Credit:
- Provides up to $15,000 to first-time home buyers through a more generous tax credit.
- Low-Income Housing Credit:
- Grows the benefit of the low-income housing credit.
- Renter’s Credit:
- Creates a refundable renter’s credit capped at $5 billion per year.
- Informal Caregiver Credit:
- Establishes a $5,000 credit for informal caregivers.
Expanded Tax Breaks for Certain Companies
- Manufacturing Communities Tax Credit:
- Creates a Manufacturing Communities Tax Credit to decrease the tax liability of businesses facing hardships tied to layoffs and closures.
- New Markets Tax Credit:
- Expands the New Markets Tax Credit and makes it permanent.
- Small Business Retirement Savings Credit:
- Provides small businesses a tax credit for establishing retirement savings plans for workers.
- "Made in America" Tax Credit:
- Establishes a “Made in America” tax credit for activities focused on restoring production, revitalizing closed facilities, and expanding manufacturing payroll.
Expanded Tax Breaks for Green Initiatives
- Renewable Energy Credits:
- Enlarges renewable-energy-related tax credits, including incentives for carbon capture, energy-efficient upgrades, and the restoration of the Energy Investment Tax Credit.
- "Cash for Clunkers" Program:
- Reinstates the “Cash for Clunkers” program, encouraging the exchange of older vehicles for more fuel-efficient ones.
- Direct Cash Rebates:
- Creates direct cash rebates for individuals upgrading appliances, installing efficient windows, and reducing energy bills.
The Tax Foundation's economic model suggests that Biden's income tax policy could reduce GDP by 1.62% over the long term, generating $3.3 trillion in tax revenue over the next decade. Notably, the burden of tax increases is expected to fall significantly on the top one percent of highest-income households.
In Part 2 of this series, we will explore the political feasibility of implementing Joe Biden's tax policy, considering the challenges and dynamics associated with gaining approval from Congress.