Vice-President Joe Biden’s Tax Proposals
As the election is only 80-days away and Joe Biden continues to demonstrate consistent by tightening leads in the national and swing-state polls, PMG Intrinsic has been contacting its clients about the tax landscape under a Biden administration. Currently, the Biden tax plan is highly progressive by increasing taxes on after-tax income for the top 1% of earners by 13-18%. The Tax Policy Center estimates that upper-class households (who make about $170,000 or more) would bear approximately 93% of Biden’s proposed tax increase. The top 1% would pay for nearly three-quarters of the tax increase. Without immediate proper planning, PMG Intrinsic’s clients would face significant increased taxes in the near future under a possible Biden administration. The prospect of significantly higher taxes should not come as a surprise as Joe Biden teamed up with Bernie Sanders to release a 110-page policy document in July. One of the document’s key progressive cornerstones is substantially increasing taxes on high-income earners: "A guiding principle across our tax agenda is that the wealthiest Americans can shoulder more of the tax burden, including in particular by making investors pay the same tax rates as workers and bringing an end to expensive and unproductive tax loopholes." First, a Biden administration would increase the top individual tax rate from 37 to 39.6%. Joe Biden would also enact seismic changes to our clients’ itemized deductions in two ways. First, he would enact a 28% cap against all itemized deductions. For example, a high-net worth client in the 39.6% bracket would only see a reduction of 28% for every dollar donated to charity. This would effectively reduce the amount our clients can deduct above a determined threshold.
The tax increases are not just centered on income, Biden would also increase payroll taxes by subjecting wages above $400,000 to a 12.4% payroll tax. Currently only taxes under $137,700 are subject to a 12.4% tax. While payroll taxes are borne by both employers and employees, business owners are targeted again with increased taxes on wealth creation and capital. Joe Biden would also eliminate the preferential treatment of capital gains and dividends that high-earners have enjoyed since the Bush administration; both would increase from 23.8% to 39.6%. In addition, Biden would eliminate step-up basis for capital gains at death. Lastly, the Biden administration would turn its eye to corporations for increasing tax coffers. Joe Biden plans to raise the corporate tax rate for C-corporations from 21% to 28%. There is no respite for pass-through entities either, the Qualified Business Income Deduction of 20% under Section 199A would begin to phase out for clients making $400,000 or more. The plan does contain some tax-cuts for the middle class. Joe Biden would significantly expand credits for expenses related to the care for disabled children and dependents by making it refundable for those with no tax liability by increasing the maximum allowable expenses to $8,000 ($16,000 for multiple dependents), and increasing the reimbursement percentage from 35% to 50%. However, clients should pay heed that the shadow of incoming taxes may be even darker. The particulars of Biden’s tax plan was released prior to the selection of Senator Kamala Harris as his running mate. In her failed campaign for the nomination she actually advocated for even higher taxes including raising corporate tax rates to 35%, expanding the estate tax, implementing a 4% “income-based premium” on households making more than $100,000 annually to pay for her version of “Medicare for All,” and imposing a financial transaction tax on stock trades at 0.2%, bond trades at 0.1%, and derivative transactions at 0.002%. Consequently, a Biden administration may tilt even more to the left if a Vice-President Harris proves to be persuasive.