By Ben Geier, CEPF®
Tax policy is one of the more inscrutable parts of American politics, yet it’s one of the areas that impacts the most people on a day-to-day basis. Former Vice President Joe Biden, the Democratic presidential candidate, has released a number of proposed tax policies, but it’s understandable if you aren’t sure exactly what they mean for you, your family and your business. This article breaks down the key points of Biden’s tax and financial policies and explains exactly how they could impact you if Biden were to take the Oval Office next January. No matter who wins in November, a financial advisor can help you make the most out of your money.
Joe Biden’s Tax Policy Basics
First things first: Joe Biden is not Bernie Sanders or Elizabeth Warren. While there are certainly stark differences between Biden and current President Donald Trump when it comes to how the tax and financial system should work, the Democratic nominee is not proposing anything as bold as the plans his Democratic rivals Sanders and Warren did when they were vying for the nomination.
That said, the candidate does have a number of proposals that would seek to raise revenue, and they are focused on getting more in taxes from the very wealthy and from big companies — especially corporations like Amazon, which has frequently been demonized for not paying its fair share of taxes.
Last year, while he was running for the nomination, Biden released a tax plan that would raise federal revenue by $3.2 billion. There are ten major increases he lays out:
With that in mind, here is how each of these might impact individuals and businesses:Taxing Capital Gains as Income
This proposal has the potential to have a huge impact on investors, especially those with a relatively big investment in the stock or bond markets. Capital gains refers to the money an investor makes when he sells an asset – such as shares of a company sold on the stock market — for more than he purchased it for.
Currently, these gains are taxed differently from income, at a rate of either 0%, 15% or 20%, depending on your tax bracket. Biden wants to treat these gains just like normal income, meaning any capital gains a person makes in a year will be added to other forms of income such as salary and bonuses, and taxpayers will pay a singlestepped tax bill at a rate based on their total income. For people who earn a lot of money in capital gains, this could lead to a big increase in tax payments, but it likely won’t have a huge impact on the average investor, who is unlikely to be making all that much in capital gains each year.Raise Corporate Tax Rate to 28%
Biden is proposing to raise the tax rate for corporations based in the U.S. from 21% to 28%. That may seem like a big leap, but it is actually still below the 35% corporate tax rate that existed before congress passed a major tax overhaul in 2017.
Generally, corporate tax rates don’t have too large an impact on average consumers. There is an argument, generally made by anti-tax conservatives, that the increased tax is passed on to consumers in the form of higher prices and labor in the form of wage reductions or layoffs, but there are many opinions on the overall impacts of corporate tax rates.End the Stepped-Up Basis Loophole
The stepped-up basis loophole allows someone inheriting property and investments to reduce his capital gains taxes. This could have an impact on anyone who thinks he will have a big inheritance coming his way in the future, and it will certainly mean people need to take another look at their estate plan if they’re planning on leaving significant assets to friends and family.Establish a Corporate Tax Minimum
This plan is the one aimed at companies like Amazon, who have been the subject or ire from many progressives for not paying taxes. Currently, some companies are able to use a series of breaks and loopholes to effectively pay no taxes, but this proposal would make sure that no matter what, corporations would pay at least 15% on all profits reported to investors.Foreign Profits Taxed at 21%
This is another plank in the Biden tax plan that mostly impacts corporations. This is to tax money earned by foreign arms of American firms. Currently, these profits are taxed at 10.5%, but Biden wants to double that to 21%.Cap Deductions for Wealthy Taxpayers
This part of the plan is aimed squarely at high earners who currently use deductions to lower their ultimate tax burden. Biden’s plan is to limit the benefit of itemized tax deductions to 28% for those whose tax rate is above that. So, for instance, if tax payers are in the top tax bracket which, under Biden’s plan, would pay 39.6% on the top-end of their income, they can only deduct 28 cents per dollar as opposed to 39.6%. Only around 10% of taxpayers itemize their deductions — and most of them are fairly high earners — but this could have a big impact on your taxes if you are in that 10%, especially if you use things like charitable giving as a way to lower your tax burden.Sanctions on Tax Havens
Biden is proposing putting sanctions on companies that actively facilitate tax avoidance by American companies. There aren’t many details on this plan, but it would mostly impact corporations.Raise the Highest Individual Tax Rate to 39.6%
The plank most focused on individual income taxes is Biden’s plan to raise the marginal rate for the highest income bracket to 39.6% from the 37% rate established by Trump’s 2017 tax bill. For very high earners, this could ultimately lead to a fairly sharp increase in their income tax bill, but it would not have a huge impact on most Americans, who are not in the top tax bracket.End Real Estate Loopholes
Biden’s plan calls for an end to “like-kind” exchanges that help property investors. He has specifically tied the money that would be raised by these changes to increasing social programs.End Tax Breaks for Fossil Fuel Production
Biden is proposing to end subsidies that help companies that produce fossil fuels. This not only raises revenue but helps endear him to progressive voters who care deeply about environmentalism and fighting climate change.Biden Tax Policy Winner and Losers
Again, while Joe Biden is not Bernie Sanders or Elizabeth Warren, it’s clear that the big losers in his tax plan are rich people and corporations. Both will see their tax bills increase and, perhaps even more importantly, they’ll lose their ability to use many of the loopholes and exceptions that lower their tax burden under the current system.
It is harder to pick out specific winners for this plan, as it is focused more around revenue increases than tax cuts, but if Biden’s presidency goes according to plan, potential winners would be the beneficiaries of the social programs he plans to fund with the taxes.The Bottom Line
The Biden tax and financial plan is not a full-scale reimagining of the American tax system the way some of his Democratic rivals envisioned, but it does have a number of relatively modest proposals that would increase government revenue and potentially narrow the income gap that has become one of the more hot button issues in American political discourse. It mostly aims to raise money from increased taxes on rich people and corporations, and includes a number of plans to close loopholes these companies and individuals use to lower their tax burden under the current system.Tips For Managing Your Money
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