President Joe Biden’s tax plans were laid out for all to see during his campaign last year. Yet, immediately after the election, conventional wisdom said that Biden wouldn’t be able to implement much of his agenda because Republicans in the Senate were going to block most of his tax policies. But that all changed when Democrats took control of the U.S. Senate in January. That means Democrats will control both the House and the Senate for at least the next two years, and Biden’s tax plans have been resuscitated because of it.
He won’t get everything he asks for, though, because the Democratic majorities in Congress are razor thin. And don’t expect quick action on tax changes because he’ll have more important things to worry about early in his presidency (e.g., the pandemic). But let’s take a fresh look at some of the higher-profile tax policy proposals Biden pushed during his run for the presidency. Brush up on them now, so you’re prepared if and when he gets a some of his ideas through Congress.
Higher Taxes on Wealthier Americans
Unlike some of his opponents in the Democratic primaries (e.g., Elizabeth Warren and Bernie Sanders), President Biden didn’t push for a “wealth tax.” But that doesn’t mean he’s opposed to a general policy of taxing the wealthy more heavily. For instance, to help close the income gap, he wants to raise the highest personal income rate back up to 39.6% (it was lowered to 37% by the 2017 tax reform law), cap itemized deductions for wealthier Americans, limit “like-kind exchanges” by real estate investors, and phase-out the 20% deduction for qualified business income for upper-income taxpayers. He promised not to raise taxes for anyone making less than $400,000, though.
As a candidate, Biden’s tax policy proposals also included eliminating the step-up in basis for inherited capital assets, which means more taxes on wealth passed to heirs, and ending favorable tax rates on capital gains for anyone making over $1 million. Also look for the federal estate tax exemption to be increased back to pre-tax reform levels. More estates of wealthy people will be subject to the estate tax if that change is made.
Tax Breaks for Ordinary Americans
- Temporarily increasing the child tax credit to $3,000 per child for children ages 6 to 17 and to $3,600 for children under 6, and making it fully refundable;
- Expanding the child care credit to 50% of a family’s childcare costs for children under age 13 (up to $4,000 for one child or $8,000 for two or more children), making it fully refundable, and gradually phasing out the credit for families making between $125,000 and $400,000;
- Forgiving student loan debt and excluding the forgiven amount from taxation;
- Temporarily increasing the maximum earned income tax credit for childless adults to around $1,500, raising the credit’s income limit for singles to about $21,000, and eliminating the age cap for older workers so that they can claim the credit too;
- Expanding the work opportunity tax credit to include military spouses;
- Enhancing tax breaks and access to 401(k) plans for workers who are saving for retirement (including “equalizing” the tax benefits of 401(k) plans); and
- Creating tax credits for small businesses that offer retirement plans for their workers.
Biden also seems open to “targeting” any third-round stimulus checks to people who are most in need. That would reduce the number of wealthier people getting a payment. He’s trying to get as many Republicans as possible to support his stimulus plan and limiting the number of people who receive stimulus checks is one way he could do that (a group of Senate Republicans recently offered their own targeted stimulus check plan). He is also getting nudged toward targeted stimulus checks by some moderate Democrats. For more on targeted stimulus checks, see Would You Get a “Targeted” Stimulus Check?
In addition, Biden’s health care plan calls for a tax penalty on pharmaceutical companies that increase drug costs by more than the rate of inflation and taking away their deduction for advertising expenses. He also wants to eliminate any tax incentives for pharmaceutical companies to move production overseas.
To help protect Social Security, Biden hopes to make more income from wealthier Americans subject to the Social Security payroll tax. For 2021, wages above $142,800 are not subject to the payroll tax (the amount is adjusted annually for inflation). Biden wants to make wages above $400,000 subject to the tax.
In addition, expect Biden to push for a new $5,000 tax credit for “informal” caregivers—family members or other loved ones—providing long-term care to the elderly. Caregivers might also be allowed to make “catch-up” contributions to retirement accounts.
Biden also wants to expand access to ABLE accounts. These are tax-advantaged savings accounts that provide people with disabilities a way to pay for qualified disability-related expenses, such as education, housing and transportation. Specifically, Biden may help pass the ABLE Age Adjustment Act, which he said would make ABLE accounts available to 6 million additional adults with disabilities, including 1 million veterans.
He also wants to enact a new renter’s tax credit to reduce rent and utility costs to 30% of income for low-income individuals. In addition, Biden supports expanding the low-income housing tax credit, which provides incentives for the construction or rehabilitation of affordable housing for low-income tenants.
Biden wants to make sure people living in the distressed communities also benefit from the Opportunity Zone program. Too often, according to the Biden plan, Opportunity Zone projects are for things like luxury apartments and hotels, instead of for affordable housing and local business development. To change this, Biden said he wants to:
- Create incentives for QOFs to partner with non-profit or community-oriented organizations, and jointly produce a community-benefit plan for each investment, with a focus on creating jobs for low-income residents and otherwise providing a direct financial impact to households within the Opportunity Zone;
- Review Opportunity Zone benefits to make sure tax benefits are only being allowed if there are clear economic, social, and environmental benefits to a community, and not just high returns to investors; and
- Require recipients of Opportunity Zone tax breaks to provide detailed reporting and public disclosure on their investments and the impact on local residents, including poverty status, housing affordability, and job creation.
In addition, Biden wants to increase the global intangible low tax income (GILTI) rate on foreign profits from 10.5% to 21%. He also supports a “claw-back” provision to force companies to return public investments and tax benefits when they eliminate jobs in the U.S. and send them overseas. He has also called for a 10% surtax on businesses that avoid U.S. taxes by sending jobs and manufacturing overseas and then sell goods back to Americans. Any deductions for expenses associated with sending jobs overseas would be eliminated, too.
Look for the pharmaceutical industry to pay more taxes, too. This could include the elimination of tax breaks for prescription drug advertisements and of any tax incentives for pharmaceutical companies to move production overseas.
On the other hand, Biden may push for some new tax breaks for certain businesses. For example, Biden said he wants a new manufacturing communities tax credit that would promote revitalizing, renovating, and modernizing existing – or recently closed – facilities. Projects receiving the credit would have to benefit local workers and communities. He also supports a new 10% “Made in America” tax credit for companies that invest in the U.S. According to Biden, this credit would help businesses that revitalize or retool U.S. manufacturing facilities, bring back jobs that were previously sent overseas, expand operations in the U.S., or increase wages for U.S. manufacturing jobs.