Nearly all of President Biden’s proposed tax increases would be borne by the top 1 percent of households, those earning about $ 800,000 or more, according to a new analysis of the Tax Policy Center. At the same time, Biden would cut taxes for many low- and moderate-income households and cut them substantially for those with children.
TPC projects that low-income households (making about $ 26,000 or less) would receive an average tax cut of about $ 600, or 4 percent of their after-tax income. Middle-income households (earning between $ 52,000 and $ 92,000) would pay an average of about $ 300 less in taxes, or 0.5 percent of their after-tax income.
However, the story would be very different for high-income households. Those in the top 1 percent would pay an average of about $ 213,000 more in federal taxes in 2022, while those in the top 0.1 percent (who will earn $ 3.6 million or more) would pay an average of nearly $ 1.6 million more, or almost 17 percent of your after-tax income.
Biden’s tax proposals
TPC analyzed the tax changes in Biden’s fiscal 2022 budget, including proposals in its American Employment Plan and the American Families Plan, all of which were outlined in the Treasury Department’s explanation of its tax proposals, known as the green Book.
Biden’s proposals include Expand recent temporary increases in the Child Tax Credit (CTC), Child and Dependent Care Tax Credit (CDCTC), and Earned Income Tax Credit (EITC), all of which would primarily benefit low-income households and media. For high-income households, it would increase tax rates for individual income tax and capital gains Tax unrealized capital gains upon death. Finally, Biden’s tax agenda includes a wide range of corporate tax increases, including a 28 percent business income tax rate, two minimum corporate taxes, and many other changes to business taxes.
There are many ways to view the distribution of Biden’s tax changes. But the basic story doesn’t change much, regardless of the objective.
For example, TPC assigns corporate taxes to people, primarily as shareholders, but also as workers. By excluding Biden’s corporate tax increases and looking only at individual income and payroll taxes, TPC’s distributive estimates shift slightly.
If we look only at individual income and payroll taxes, lower-income households see a slightly larger increase in median after-tax income (as they would no longer bear the burden of worker share in those taxes). corporate rate cuts). Middle-income households would also benefit from not bearing the shareholders’ share of Biden’s corporate rate hikes.
The impact is even more dramatic for high-income households that benefit primarily as shareholders. For example, excluding your share of corporate tax would reduce the average tax increase from the top 1 percent from about $ 213,000 to about $ 174,000, or from 11 percent of after-tax income to 9 percent.
For those looking to see if Biden made good on his promise not to raise taxes for those making $ 400,000 or less, the answer is: mostly, but not quite.
Unfortunately, TPC does not break down the exact income levels that Biden is targeting, but their tables show households with income of $ 500,000 or less.
Including corporate tax increases, most households would pay more in 2022. Roughly three-quarters of middle-income households would face a tax increase of about $ 300. But almost all of it would be the result of those higher corporate taxes.
However, if you look only at personal income and payroll taxes, What seems like a fair reading of Biden’s promise, the story is quite different. Among those earning less than $ 200,000, only a few thousand would pay higher taxes in 2022. Almost everyone would be wealthy deceased who would pay Biden’s tax on unrealized capital gains.
About 0.6 percent of those earning between $ 200,000 and $ 500,000 would pay more in taxes, averaging $ 22,000. Some, of course, would be earning between $ 400,000 and $ 500,000.
Another way of looking at Biden’s plan is to divide households into those with children and those without them. Biden’s tax agenda is heavily skewed toward parents. For example, while all low-income households would get an average tax cut of around $ 620 in 2022, taxes for those families with children would plunge to an average of $ 3,200. This is a feature, not a bug, of the Biden plan. But the difference is surprising.
Finally, there’s one more way to look at Biden’s fiscal agenda: How would his proposals affect various income groups in 2031?
It’s helpful to think of 2026 as a tipping point. This is because all individual tax changes in the Tax Cuts and Jobs Act of 2017 expire at the end of 2025.
Therefore, tax rates would increase for many households and many business owners would lose the benefit of the special 20 percent TCJA deduction for transfers as partnerships. At the same time, the State and Local Tax Deduction (SALT) and Diverse Individual Income Tax Deductions would be fully reinstated. High-income households could use those deductions to reduce their taxable income and protect some or all of their capital gains from the Biden plan to tax them at the maximum rate of 39.6 percent.
In network, tax increases for the highest income earners would be somewhat lower in 2031 than in 2022. For example, if only individual tax provisions are looked at, the top 1 percent would face a tax increase of approximately $ 156,000, or 6.8 percent of after-tax income, in 2031. That compares to an increase tax in 2022 of 9 percent of after-tax income. .
Low- and moderate-income households would see somewhat smaller tax cuts in 2031 than in 2022. For example, taxes for middle-income households would drop only about $ 90 in 2031, compared to $ 640 in 2022. At its highest Some of the more modest 2031 tax cuts are due to Biden’s CTC expansion slated to expire in 2025.
Biden proposes major changes to the US tax code, and, as he’s been saying for a year, they are largely divided between tax cuts for families with children and tax increases for high-income households and corporations. The TPC analysis quantifies how those tax changes affect different households.