By Robert Arne
Voters must pick candidates on the combination of spending and tax programs, but taxes frequently go unconsidered. As a paraplegic with student loans I could gain short run substantially from Biden’s long-term care, early Medicare and loan forgiveness. But as a financial planner with a tax practice, I see long-term consequences of policy as I help taxpayers find tax loopholes and probe opportunities to gain financial independence. Biden closes loopholes taxpayers privately relish, but fulfills dreams of social justice.
Trump applauds his Tax Cuts and Jobs Act of 2017 which lowered income taxes to 35% (effectively 26.8%). The salariat in high tax states like California hates Trump taxes because he limits state and local tax deductions. They can’t move like retirees to low tax states. Upper-class taxpayers lost mortgage interest and itemized deductions, but they paid less AMT under Trump. They have more incentive to convert second homes into rentals if they need refinancing. Meanwhile, the lower middle class prospered from higher, simpler, $24,000 MFJ standard deductions with child tax credits raised to $2,000 of which $1,400 is refundable. Trump eliminated penalties for non-payment of health insurance premiums to undermine Obamacare.
Trump also reduced corporate income tax from 35% to 21%. He reduced tax avoidance and increased competitiveness by making tax rates depend upon rates in territories where American companies do business. Trump really could have paid $700 in taxes if his businesses did poorly; so what? Trump’s qualified business income deduction (section 199A) benefits entrepreneurs, partnerships and S corporations. His wall is not particularly expensive but Trump and Biden both favored expensive coronavirus relief and protecting taxpayers with pre-existing conditions. He encourages America’s salariat to consider new meaning in life from business ownership.
Families may face a 40% estate tax, but Trump doubled the taxable estate size to $11.2 million, so only the super-rich scurry for trusts or charities. Half the taxpayers paid roughly a 4% effective tax rate after deductions and credits, compared to the top 1% with roughly a 26.8% effective rate. Excepting payroll and sales taxes, “…individual income taxes continue to be very progressive, borne primarily by high-income earners,” said Erica York, an economist at the Tax Foundation.
A Republican Town Hall participant asked Biden:
“You stated that anyone making less than $400,000 will not see one single penny of their taxes raised. You also stated that you were going to eliminate the Trump tax cuts.”
Biden answered that in Trump tax cuts, “about $1.3 trillion of the $2 trillion of the tax cuts went to the top 1/10th of 1 percent — that’s what I’m talking about eliminating,” he stated. We understand Biden’s taxes best by looking at his higher income, capital gains and dividends taxes for the rich and amazing panopoly of programs:
Healthcare: Concerned with pre-existing conditions for those excluded from government healthcare, Biden wishes to insure 97% of Americans at costs of $750 billion over ten years, largely through expansion of government insurance and lowering of Medicare eligibility ages.
Infrastructure: Biden wants “good union jobs” for green energy and domestic industry, he said at Brookings. “We need a massive investment in infrastructure: roads, bridges, airports, broadband. We’ve been lagging for too many years now, and we can afford it.” Biden wants to spend $1.3 trillion on infrastructure over a decade.
Education: While Trump wants school choice, Biden favors government-sponsored kindergarten, aid to public schools, free community colleges and public four-year colleges and forgiveness of most student loans.
To buy our “free lunch,” Biden proposes the following:
Income taxes increase from 37% to 39.6% on the rich.
Capital gains taxes rise from 20% to 39.6% for high income taxpayers with no stepped-up basis.
$400,000 salary earners face 12.4% payroll taxes with limited itemized deductions.
Corporate taxes would rise from 21% To 28% with a 15% minimum tax on book income.
Small business owners would lose QBI deductions if they earned more than $400,000 yearly.
40% Estate taxes apply to estates above $5 million.
Social justice determines taxation. Biden will tax failure to purchase health insurance. The child tax credit may rise to $3,000 per child between ages six and 17 or $3,600 for children under six. The first-time homebuyers’ tax credit will give $15,000 immediately to homebuyers and a refundable renters’ credit. Biden hopes to pay off student loans with abolition of the excess business losses tax cut in the CARES Act (COVID relief). To keep business American, Biden wishes to double the minimum tax on foreign business to 21%.
Planners face limited opportunities if Biden wins because Biden eliminates many wealthy clients’ favorite stratagems: foreign investments, retirement plans, capital gains, dividends. Certainly they will think twice about earning more than $400,000 with stock, bond or realty investments. Middle class people will suffer from sales of homes, farms or investments over $400,000. Are Biden’s plans dreams without price tags?
Experts don’t agree on the tax costs of Biden’s plan, but The Tax Foundation General Equilibrium Model of January 2020 suggested that Biden’s taxes would draw in dynamic revenue of $2,650 trillion dollars as it reduced GDP by 1.47% (taxes do that), capital stock by 2.47% (Biden taxes capital heavily) and Full-time equivalent jobs by 517,800 (because jobs depend upon capital and business income). CNBC says: “Added to California’s top rate of 13.3%, the combined top marginal income tax rate for top-earning Californians would be 62.64%” and Penn Wharton suggests higher taxes for all. Readers may determine the tax value of additional healthcare, free government education and green economic stimuli for America’s future. .