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President-elect Joe Biden’s plan to raise taxes on the wealthy and its potential impact on stocks

US tax law will change if multiple policy proposals by former Vice President Joe Biden, a candidate for the US Democratic Party of Washington, are realized. Broadly speaking, his proposal to raise taxes on the wealthy and businesses means eliminating multiple Republican-backed tax cuts. These tax cuts were signed by Mr. Trump in 2017 and became a law.

Even if the election campaign is won, it is unlikely that the Biden camp’s plans will come true as proposed. It is likely that the environment will be easy to pass as law if:

  • Democratic Party regains the majority in the Senate
  • Maintains the majority in the House of Representatives.

No tax raise for people with an annual income of $ 400,000 or less

Mr. Biden has promised not to raise taxes for people with an annual income of less than $ 400,000. When considering only direct taxes, multiple economic models show that it is not false. These models include those created by the bipartisan organization Responsible Federal Budget Committee and the University of Pennsylvania at Wharton. For these taxpayers, the amount of tax paid to the Internal Revenue Service (IRS) will not increase.

But the story of indirect taxes is a little different. Biden, for example, has proposed raising corporate taxes, but economists assume that workers will eventually bear part of the cost of these taxes. Workers’ income tax rates will not rise, but after-tax wages may fall.

Even under such assumptions, the University of Pennsylvania-Wharton model shows that the burden on high-income earners is very heavy. After-tax income is likely to decline by an average of 0.9% for people with an annual income of $ 400,000 or less. While the rate of decline for those with an annual income above this is 17.7%. Biden is also proposing to increase tax credits for households with children and restore tax credits for first home buyers.

tax return

Tax increase for wealthy people

The maximum federal tax rate can be raised from 37% to 39.6%. Which is the same level as before the Trump administration. If realized, it will affect people with taxable income in excess of $ 400,000.

Biden also said that income of more than $ 400,000 will be subject to social security payroll tax. Under the current system, the taxable income limit is $ 137,700.

According to a report from the Tax Policy Center, a joint venture between the Urban and Brooking Institutions of US think tanks, for example, the top 1% of high-income earners will see an average decrease in after-tax income of 15.9%…

Tax increase for companies

Mr. Biden’s plan is to raise the corporate tax from 21% to 28%. In addition, a minimum tax of 15% on book income will be introduced and a tax increase on foreign profits will be included.

According to an analysis by the US think tank Tax Foundation, about 51% of the expected increase in tax revenues by Mr. Biden’s proposal impacts businesses.

Increased tax revenue of $ 2.4-4 trillion in 10 years

The initial analysis estimated that Biden’s tax plan would increase tax revenues by more than $ 4 trillion in 10 years. But analysis, after he added more items, reports that costs will be close to $ 2 trillion. Tax revenue growth over a 10-year period is estimated at $ 2.8 trillion by the right-wing American Enterprise Institute and $ 2.4 trillion by the Tax Policy Center.

Changes in the treatment of defined contribution pension accounts

Mr. Biden also proposes to change the tax treatment of the defined contribution plan called 401K and increase the tax deduction for low-income earners. This suggests that high-income earners may have fewer deductions than they currently have.

The Biden camp’s proposal is not clear on some important points. But it is a form of tax deduction that allows a certain percentage of the contribution amount refunded from the current system. Where managers can receive tax deductions of up to $ 19,500 each year. May change to.

Tax Foundation states couples who work together and earn up to $ 80,250 a year will benefit from these changes. While the benefits of tax incentives will be reduced to some extent for those who belong to the higher income category.