Biden’s Tax Plan

Biden%27s+Tax+Plan

John Quinlan, Contributor

With the promised Covid relief stimulus package passed, President Joe Biden and his administration will likely turn their attention to reforming the tax system. With a split senate and influential moderates like Senator Joe Manchin, Biden and the Democrats have their work cut out for them to pass the plan that they want. Most of the policies proposed in this plan can have heavy implications on the US economy.

The most advertised campaign promise with regards to taxes is that Joe Biden will only raise taxes on the rich. Recently, White House Press Secretary Jen Psaki reiterated this point when discussing the president’s agenda, “Nobody making under $400,000 a year will have their taxes increased.”

There are skeptics of whether Biden can maintain this promise or not. Even with heavy tax increases on corporate America and the wealthy, it may not be enough to foot the bill of many of Biden’s spending plans.

One major change would be to reverse the corporate tax rate under Trump’s plan and return to the corporate tax rate from 21% to 28%. This increase would raise the U.S. federal-state combined tax rate to 32.34%, the highest combined corporate income tax rate in the OECD. This increase would likely slow economic growth, as the original lower rate reduced incentive for corporations to shift profit and increased incentive for investment that would stimulate higher growth.

Another major shake up in corporate taxes would be the “Made in America” tax credit. This policy provides a 10 percent tax credit for businesses that invest in closed or closing manufacturing facilities in America. This tax would also apply a 10 percent surtax on foregin subsidiaries of U.S. based companies that sell their products or services to U.S. customers. With Biden’s proposed 28% corporate tax rate, companies in this situation would face a 30.8 percent tax rate.

There are some critics of this policy proposal, citing the effectiveness of the 2017 tax reform (Tax Cuts and Job Acts) in increasing American competitiveness in the international market. The Tax Foundation says that this policy proposal would not necessarily accomplish what it is meant to do, “The Biden proposal would reverse many of those positive changes and create new challenges for U.S. businesses when competing with foreign companies both in the U.S. and in foreign markets. If the goal of the Biden campaign is to bring new investment and jobs to the U.S., it is doubtful that these new tax rules will contribute to that goal.”

The Biden proposal would reverse many of those positive changes and create new challenges for U.S. businesses when competing with foreign companies both in the U.S. and in foreign markets. If the goal of the Biden campaign is to bring new investment and jobs to the U.S., it is doubtful that these new tax rules will contribute to that goal”

There are many considerations in Biden’s proposed tax plan to increase taxes on the wealthy in multiple ways. This includes a proposal to tax capital gains as ordinary income for annual earners over $1,000,000.

CNBC’s Jim Cramer believes this policy would raise large amounts of money, “It would raise a lot of money, and it would certainly raise a lot of money before it would happen.” Before the plan would be implemented, many investors would cash in on their assets to avoid paying a higher capital gains tax, therefore raising large amounts of tax revenue from increased volume.

Another controversial part of the proposed plan is placing a limit on federal deduction of state and local taxes (SALT) to $10,000 annually. This may be a difficult addition to negotiate as lawmakers propose additional taxes for high-income earners and tax credits for lower-income taxpayers.

These additional taxes would include raising the top tax rate from 37% to 39.6%, as well as possibly raising the estate tax rate to 45%.

As Congress will soon begin to debate our nation’s tax policy, it will be interesting to see if the Biden Administration can implement the plans from its campaign promises. With ambitious plans for infrastructure spending and expanding government programs, Democrats will be eager to expand America’s tax policies and Republicans will be staunch defenders of Trump’s tax reforms of 2017.