What you need to know about Joe Biden’s Tax Plan

Author: Shiven Mohindra

The BRB Bottomline:

The 2020 US Presidential Election is today, and with many dubbing this the most important election of our lifetimes, the stakes are higher than ever. A key talking point throughout the race has been Democratic candidate Joe Biden’s tax plan, but what exactly is his plan and how will that affect the average American?

After months of campaigning, candidates Donald J. Trump and Joe Biden are to have their fate sealed today in one of the most highly anticipated elections ever. Given the coronavirus pandemic and it’s taxing impact on the economy, it’s time we delve into Joe Biden’s tax plan, which has been at the forefront for a lot of discussion over the course of his campaign.

During the course of his first term, current president Donald J. Trump wasted no time in cutting taxes for the American people. Notably, in late 2017, the Trump administration signed the Tax Cuts and Job Acts (TCJA), which reduced individual income tax rates, doubled the standard deduction, and eliminated personal exemptions. Specifically, tax rates for the top bracket income earners were reduced from 39.7% down to 37% while the maximum corporate tax rate was drastically cut from 35% to 21%. If elected, former Vice President Joe Biden vows to reinstate a tax rate of 39.7% for individuals making over $400,000 per year and raise corporate tax rates to 28%.

According to the Tax Foundation General Equilibrium Model, Biden’s tax plan would reduce the size of the economy by 1.62% in the long run. The plan would shrink the capital stock by 3.75% and reduce the overall wage rate by slightly more than 1%, leading to a loss of as many as 542,000 full-time jobs. 

Many small businesses have suffered recently as a result of the COVID-19 pandemic and state-wide lockdowns, and having to pay increased corporate taxes will force them to think hard about their decision to reopen. The following infographic from WealthAbility shows a comparison between the two candidates’ plans and how they will affect small businesses. By increasing the corporate tax, Biden seeks to have a more equitable distribution of wealth; while this seems to benefit most Americans, the key question that is raising some eyebrows is the timing of Biden’s proposal. Given the taxing effects of the global pandemic on the US economy, the question ought to be asked: Is now the right time to increase taxes on small businesses who are finally getting back on their feet and opening up? Due to the volatility of the economy and pandemic, it is near impossible to predict when the right time would be for Biden to implement his plan if elected.

Biden seeks to improve the distribution of income using a simple policy of ‘taxing the rich.’ He hopes that raising the income tax for the highest earners to 39.7%, it will allow the government to use the surplus revenue generated to re-invest in improving the livelihood, opportunities, and standards of living for low-income Americans. However, Biden has explicitly said that he will not raise taxes for those making less than $400,000 and assured voters “That’s a guarantee, a promise. I give you my word as a Biden. That’s an absolute guarantee.” In addition, Biden believes that the ultra-wealthy Americans hold a social responsibility to give back to society. In a recent interview with 60 Minutes, he said “You got billionaires in this country making $700 billion during this [coronavirus] crisis. $700 billion.” It seems evident that Biden is looking to impose policies to make sure all sectors of society are doing their part to help the country as a whole and hopes his tax increases will help reduce the income inequality gap. 

It is clear that the two presidential candidates for today’s election have very contrasting tax plans; while one presents a plan that favors capitalism and the free market, the other seeks a more equitable approach that forces more social responsibility on the wealthier sectors of society. In what is likely the most influential election of our lifetimes, it is imperative that you exercise your right to vote and go out on November 3rd to make your voice heard. 

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