Who Would Pay More Under Biden’s Tax Plan?
Joe Biden’s tax plan would have high earners paying significantly more, with the top 1% of households shouldering 80% of the increase while those earning less than $400 would see no change on average, according to a new analysis by the Penn Wharton Budget Model.
The basics of Biden’s proposals: Biden’s tax plan calls for repealing elements of the 2017 Republican tax law, including restoring the top income tax rate to 39.6%, where it was before the new law cut it to 37%. Biden would also raise the corporate tax rate from 21% to 28%, subject earnings over $400,000 to the Social Security payroll tax and treat capital gains and dividends the same as earned income, among other proposals.
Who gets hit: Under Biden’s plan, the effective tax rate on the top 0.1% of earners — those now making roughly $3.3 million a year or more — would rise by 12.4 percentage points to 43%, the Penn Wharton model says. Households earning more than $400,000 would see their after-tax incomes decrease by 17.7% on average, compared to a 0.9% decrease for those earning $400,000 or less.
The drop for the latter group is not due to direct tax increases but is the result of lower investment returns and wages projected under the Pen Wharton model as a consequence of Biden’s corporate tax hike. “Relative to current law, the Biden plan leaves the income and payroll taxes of almost all households below the 95th percentile of income unchanged,” the analysis says.
The big picture for the federal budget: In all, Biden’s policy plans would raise $3.375 trillion in additional revenue over 10 years, the Penn Wharton model finds. Biden’s corporate tax increase is the biggest revenue raiser, projected to generate more than $1.4 trillion over 10 years, followed by his payroll tax plan ($992.8 billion) and individual income tax plan ($944 billion).
Biden’s platform would also increase spending by $5.35 trillion, the report says. The largest areas of new spending would be education ($1.9 trillion over 10 years) and infrastructure ($1.6 trillion). Factoring in the macroeconomic and health effects of Biden’s platform, the report projects that by 2050, federal debt would decrease by 6.1% and gross domestic product would rise by 0.8% relative to current law.