Politics & Finances

A Breakdown of Joe Biden's Tax Proposals

A Breakdown of Joe Biden's Tax Proposals

As the election campaign season has progressed and the candidate field has narrowed to two, we have learned more about the various legislative, fiscal, and other policies that may impact our country should a candidate win the election in November 2020.

Today, we will take a look at an overview of the former Vice President Joe Biden's proposed tax policy. Note that our aim is to provide an unbiased summary of Biden's proposals and this does not indicate an endorsement for (or any opinion on) either candidate.

Individual Tax Plan

High Income Taxpayers

Joe Biden's individual income tax plan includes a component that would impose a payroll tax for individuals earning in excess of $400,000 annually. The 12.4 percent tax would be considered a Social Security tax and would be paid 6.2 percent by the employer and the remaining 6.2 percent by the employee.

This policy change would create a gap as wages between the current income limit of $137,700 and $399,999 would not be subject to the additional Social Security tax.

Additionally, the tax plan would restore the top 39.6 percent tax bracket for those with taxable income over $400,000 from the current 37 percent top rate introduced by the Tax Cuts and Jobs Act.

Those with taxable income over $400,000 would also see a phasing out of the Section 199A qualified business income deduction.

For those eligible to itemize deductions on their individual tax returns, the deduction would be limited to 28 percent and the Pease limitations on itemized deductions would be restored. The Pease limitations reduced the total itemized deductions for high income taxpayers by 3 percent for each dollar that their itemized deductions exceeded the adjusted gross income threshold. 

For those with income in excess of $1 million in taxable income per year, the preferential tax rates for long-term capital gains would be eliminated. This investment income would be subject to the proposed 39.6 percent top income tax rate.

Additionally, the step-up in basis typically applied for capital gains when a taxpayer passes away would be eliminated.

Provisions for Older Americans

Joe Biden has outlined a number of policies that will impact older American workers and retirees. Examples include an expansion to the Earned Income Tax Credit to now include taxpayers over the age of 65 with no children.

For those who use their retirement savings in order to pay for long-term health insurance premiums, the tax plan would provide expanded tax benefits.

It also includes a provision of a $5,000 non-refundable tax credit for family members who serve as informal caregivers to their elderly relative.

Additional Provisions

The proposal includes a provision that would expand the current child tax credit to $8,000 for American families to help with the cost of dependent related expenses.

The plan includes a benefit eliminating student loan debt for taxpayers, while excluding the forgiven amounts from taxable income.

The Work Opportunity Tax credit, which provides incentives for employers who hire specific groups who typically face barriers within the labor market, would be expanded to include military spouses as a target group.

Under the Biden tax plan, changes would be made to the current Obamacare premium tax credit to eliminate income limitations, allowing all families who purchase a policy on the health insurance exchange to qualify for the credit. Additionally, the amount of the credit would be based on the gold level health plan rather than the current silver plan included in credit calculations.

Several provisions in the proposed tax plan are aimed at addressing climate change issues. These incentives include bringing back the entire benefit of the electric vehicle tax credit. The plan also includes language to support the idea of a tax on carbon usage and providing tax breaks for individuals and companies who increase their energy efficiencies.

Potential homeowner and renters are also included in the Biden proposed tax program. First-time homebuyers would include an immediate tax credit of $15,000.

Low income renters would receive a 30% tax credit based on the amount paid for rent and utilities.

Joe Biden's tax plan includes additional tax credits related to renewable energy and others aimed at providing benefits to low- and middle-income taxpayers saving for retirement. This would include “automatic 401(k)” plans for those who do not have access to such retirement plans and catch-up retirement plan contributions for caregivers who are taking care of an elderly relative.

Business Tax Plan

In addition to the individual tax plan provisions outlined, Joe Biden's tax plan includes changes to the current business tax structure.

The presidential candidate's tax plan would raise the corporate income tax rate from its current 21 percent level to 28 percent.

The Biden tax plan also impacts the earnings of foreign subsidiaries of U.S. firms. The Global Intangible Low Tax Income (GILTI) rate would double from 10.5 to 21.5 percent.

Large corporations would also be affected by the candidate's plan.

For those with more than $100 million in book income, the company would be required to pay the greater of their regularly imposed income tax or the 15 percent minimum tax rate.

The Manufacturing Communities Tax Credit outlined in the proposal would provide relief for businesses operating in distressed manufacturing communities, reducing their tax liabilities.

Drug companies are currently allowed to deduct the amount spent on advertising when calculating their taxable income. The Biden tax proposal would eliminate the deduction for advertising expenses.

In addition, if drug companies increase the cost of prescription drugs in any given year by more than the cost of inflation, that business would be subject to tax penalties.

Small businesses would receive benefits by providing workplace retirement plans for their employees.

From an environmental perspective, the tax plan would expand provisions for a number of renewable energy credits while eliminating subsidiaries for fossil fuels.

There are still a few months between now and the general election and November and these tax proposals are subject to change.

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Spencer Wilson

Spencer Wilson

Spencer Wilson, EA is a tax preparer based in Long Beach, CA. Spencer Wilson Financial Management Services has been serving the Greater Los Angeles Area and Orange County since 2004. <br /> We began in the heart of Naples in Long Beach and we continue to work hard offering tax preparation and planning, business accounting and bookkeeping and payroll services . <br /> We have helped many different people and businesses succeed financially and take control over their finances.

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