Democratic presidential candidate Joe Biden has put forth several proposals that would change the tax code.
In general, he’s proposing to raise taxes on the wealthy and on corporations by reversing some of the Republican-backed tax cuts that President Donald Trump signed into law in 2017.
It’s unlikely that Biden’s campaign plans would come to fruition just as he’s proposed them, even if he wins the election. He’d have an easier time getting them passed if Democrats also take back the Senate and maintain control of the House.
Here’s what you need to know:
Biden pledges not raise taxes on anyone earning less than $400,000
Biden has pledged not to raise taxes on those earning less than $400,000 a year (that’s more than 90% of taxpayers). When considering direct taxes only, several economic models show that to be true, including one from the bipartisan Committee for a Responsible Federal Budget and the Penn Wharton Budget Model. That means those taxpayers won’t be writing a bigger check to the IRS.
But the story is a little different when considering indirect taxes, like the corporate tax hike Biden is proposing. Economists assume that workers eventually bear some of the cost of those taxes. They won’t see a higher income tax rate, but their after tax-wages could be lower.
Under that assumption, the Penn Wharton Budget Model still shows that higher-income earners would shoulder most of the burden. Those earning less than $400,000 would see an average decrease in after-tax income of 0.9% while those earning more would see a decrease of 17.7%.
Biden is also proposing to expand the child tax credit and to reestablish a first-time homebuyers’ tax credit.
Taxes would go up on the wealthy
Biden proposes raising the top federal tax rate from 37% to 39.6%, its pre-Trump level. This would affect those with taxable incomes above $400,000.
He would also subject earnings over $400,000 to the Social Security payroll tax, which is currently limited to $137,700 of earnings.
The top 1% of earners, for example, are estimated to see an average 15.9% reduction in after-tax income, according to a report from the Urban-Brookings Tax Policy Center.
Business taxes would go up
Under Biden’s plan, the corporate tax rate would rise from 21% to 28%. He would also establish a 15% minimum book tax and tax increases on international profits.
The proposed taxes on businesses account for about 51% of the revenue gains from Biden’s plan, according to an analysis by the Tax Foundation.
It would raise between $2.4 and $4 trillion over 10 years
Earlier analyses of Biden’s tax plans said they would raise more than $4 trillion in tax revenue over 10 years. But more recent reports, which came out after Biden put forth more provisions, put the cost at closer to $2 trillion. The right-leaning American Enterprise Institute found they would raise $2.8 trillion over a decade. The Tax Policy Center put the number at $2.4 trillion.
401(k) retirement accounts could change
Biden is also proposing to change the way 401(k) retirement savings accounts are treated in the tax code in order to give low-income earners a bigger tax break up front. It would likely mean higher earners would see a smaller tax break than they do now.
Biden’s campaign proposal is vague on some key details, but here’s how it could work: The current system – which allows savers to take up to $19,500 in income-tax deductions every year – would be replaced with a flat refundable tax credit.
Couples filing jointly who earn roughly up to $80,250 would benefit from such a change, while those in the higher brackets would lose some of the value of the tax benefits when compared with current law, according to the Tax Foundation.