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Biden’s Tax Plans Total $4 Trillion in Tax Hikes, Study Says

Posted on Mar. 6, 2020

A new report says Democratic presidential candidate Joe Biden’s tax proposals would raise $4 trillion over a decade, with the tax increases falling almost exclusively on high-income taxpayers and businesses.

A few major tax increases and a bevy of smaller ones, combined with some new tax expenditures, add up to a net $4 trillion tax increase from fiscal 2021 to 2030, the Urban-Brookings Tax Policy Center (TPC) estimated in the March 5 report.

“It turns out, four big-ticket items account for 80 percent of the revenue gain,” Gordon Mermin of the TPC told reporters March 5. One of those items, a proposal to apply the payroll tax to earnings above $400,000, would raise $962 billion, while Biden’s proposal to dial the corporate tax rate up to 28 percent would raise another $1.3 trillion, according to the report.

The other two major sources of revenue in Biden’s plan concern changes to how capital gains are taxed and a partial repeal of provisions of the Tax Cuts and Jobs Act for households with income exceeding $400,000.

Biden's proposal to treat capital gains and dividends as ordinary income above a $1 million income threshold and tax unrealized capital gains at death would raise a combined $448 billion, while his plan to restore both the pre-TCJA individual income tax rates and the cap on itemized deductions for high-income taxpayers, as well as his proposal to phase out the section 199A deduction for qualified business income above $400,000, would total $432 billion.

The report doesn't take into account the effects of Biden’s spending proposals for which the revenue is being raised, although it notes that those proposals would have “important distributional and economic effects.”

Distributionally, Biden’s tax plan overwhelmingly raises revenue from high-income earners and businesses.

“The take-home point on distribution is that the highest-income households see substantial tax increases while households on the bottom 80 percent see only small or modest tax increases,” Mermin said. The top 1 percent of households would see their after-tax incomes drop by 17 percent, while the bottom 80 percent would see a reduction in after-tax income of just 0.5 percent or less, he said.

In dollar amounts, that means the top 1 percent would pay roughly $300,000 more in taxes, the middle quintile would see their taxes go up by $260, and the bottom 20 percent would pay $30 more.

Mermin explained that the modest tax increases on middle- and low-income taxpayers stem from the indirect effect of higher corporate taxes that reduce wages and investment income trickling down, rather than from any direct individual income tax increase.

Tax Cuts

Biden’s tax plan isn’t purely tax increases. The former vice president’s plan also calls for $270 billion in new tax expenditures.

Those new tax cuts include reinstating the full electric vehicle tax credit and tax credits for residential energy efficiency investments, as well as providing a new tax credit for family caregivers of individuals with physical or mental disabilities and an income exclusion for student loan forgiveness.

Biden also proposes some retirement-oriented changes, including establishing automatic IRAs and providing a credit for small businesses offering retirement plans. His campaign has called for replacing the deductibility of worker contributions to retirement plans with a 26 percent refundable tax credit that would be revenue neutral over the long term, Mermin said.

Replacing the retirement contribution deduction with a refundable credit would cost $54.7 billion over the first 10 years, but raise $59.3 billion in the second decade, according to the analysis. It would also “greatly increase the progressivity of retirement tax subsidies,” Mermin said.

Like a Wealth Tax, but Different

Biden stands apart from some of his current and former rivals for the Democratic presidential nomination by not calling for a wealth tax, but Mermin said Biden’s proposals targeting capital gains “accomplish some of the same goals.”

Eliminating stepped-up basis on capital gains exceeding $100,000 helps close “one of the avenues by which investment income can escape taxation,” Mermin said. And when combined with the proposal to tax capital gains as ordinary income for households with income over $1 million, the two proposals are highly progressive, accounting for 45 percent of the tax increase on the top 0.1 percent, he said.

TPC Director Mark J. Mazur added that taxing capital gains at death takes away a large part of the incentive to defer capital gains indefinitely. “That’s similar to taxing capital gains annually," he said, though not as rapidly.

Just Like Old Times

Mermin observed that several of Biden's tax proposals come from the Obama administration playbook.

In his 2017 budget, President Obama had likewise proposed eliminating stepped-up basis and tax expenditures for fossil fuels, while also providing new or increasing tax subsidies for clean energy and carbon sequestration. Obama had also supported a 28 percent corporate tax rate.

The report notes that Biden’s tax proposals amount to 1.5 percent of GDP. While far more substantial than the tax increases proposed by 2016 Democratic presidential nominee Hillary Clinton, whose proposals amounted to 0.5 percent of GDP, Biden's are comparable to Obama’s menu of revenue raisers, which totaled about 1.2 percent of GDP.

“So Biden’s in the neighborhood of Obama,” Mermin said.

Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.

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