United States President Joe Biden aims to fund expanded education, child care, paid leave and other reforms by collecting more tax revenue from Americans who make more than $400,000 a year.
Joe Biden Wants To Raise $1.5 Trillion
He would do so by raising the top income and capital-gains tax rates, changing the taxation of wealthy estates, closing so-called tax loopholes and focusing audits of the rich to prevent tax evasion. All told, the American Families Plan would raise $1.5 trillion over a decade by taxing the highest earners, according to the White House.
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Joe Biden tax plan could save some nearly $15,000 a year on child care. Workers could get 12 weeks of paid leave under Biden’s plan. Biden’s American Families Plan could make free college a reality. “I think you should be able to become a billionaire or a millionaire,” Joe Biden told Congress Wednesday night in a speech outlining his agenda. “But pay your fair share.”
The richest 1% of taxpayers, who have an average income of $2.2 million, would shoulder the burden of the tax hike, according to an analysis published by the Institute of Taxation and Economic Policy. Two-thirds of this group would see their taxes increase, by an average $159,000 a year, according to the analysis. Of course, the proposal faces headwinds in Congress. Passage isn’t guaranteed and parts of the plan may change.
A new top tax rate of 39.6%
Joe Biden’s tax plan would raise the top income tax rate to 39.6%. That was the highest rate prior to the 2017 Tax Cuts and Jobs Act, which lowered it to the current 37%. The 39.6% rate would apply to the top 1% of Americans, according to the White House.
Households with more than roughly $540,000 of income fall among the wealthiest 1% of taxpayers, according to Garrett Watson, a senior policy analyst at the Tax Foundation. However, the precise income thresholds at which the 39.6% rate would kick in for single taxpayers and married joint filers are unclear.
They would likely correlate with the current 37% top rate, Watson said. That rate applies to income in excess of $523,600 for single filers and $628,300 for married couples. This aspect of Biden’s proposal would raise about $110 billion over a decade, according to the Tax Foundation. Biden is essentially fast-tracking a future change to the tax code — the top income-tax rate is already scheduled to revert to 39.6% after 2025, per language in the Tax Cuts and Jobs Act.
A doubling of the capital gains rate
The American Families Plan would also change how the rich pay tax on investment returns in two big ways. “These parts of the proposal, to me, would impact wealthiest people the most,” said David Herzig, a principal with Ernst & Young’s private client services tax group.
For one, Biden’s plan would raise the top tax rate on long-term capital gains to 39.6% — the same rate as their wages. (Including a 3.8% Medicare surtax, they would pay a 43.4% top rate.) It would be an increase from the current 20% (or, 23.8% including the surtax on net investment income).