This month seems to be the perfect time to revisit what we know about President Biden’s tax plan. During his presidential campaign, President Biden proposed raising taxes on corporations, estates and high-income households, reversing key parts of the 2017 tax cuts passed by Republicans and reprising policies that the Obama administration couldn’t get through Congress. The likely result: up to $2 trillion worth of tax increases over the next decade, says Donald Schneider, an economist and former House Republican aide at advisory firm Cornerstone Macro. That is shy of what Mr. Biden proposed but still a significant bump in federal revenue to pay for new programs and targeted tax cuts and far beyond what could happen if Republicans had held the Senate.

Top Rate

Current: The top rate on ordinary income was reduced from a high of 39.6% to 37%.

Biden's Plan: Households making more than $400,000 would see their tax rates go up under the Biden plan, and he would raise the top rate to 39.6% from 37%. He would also limit deductions and raise payroll taxes for that group, though his proposed payroll-tax changes may not qualify for the fast-track rules to avoid a Senate filibuster. (though whether this is for single filers, joint filers, or both, was never made clear)

Top Rate on Long-Term Capital Gains and Qualified Dividends

Current: Long-term capital gains (sale of stock held more than one year) and qualified dividends are currently taxed at a high of 20%, though most American's pay 15%, with those in the 10% and 12% brackets paying 0%.

Biden's Plan: The top rate would equal the ordinary income tax rate for income in excess of $1 million. Big change. 20% to 39.6%.

Elimination of the 20% Qualified Business Income (QBI) Deduction

Current: Taxpayers who operate businesses as an S corporation, partnership, or sole proprietorship may claim a deduction equal to 20% of the qualified income earned in the business.

Biden’s Plan: Biden would phase-out the deduction for those taxpayers with taxable income in excess of $400,000.

Elimination of the 20% Qualified Business Income (QBI) Deduction

Current: Taxpayers who operate businesses as an S corporation, partnership, or sole proprietorship may claim a deduction equal to 20% of the qualified income earned in the business.

Biden’s Plan: Biden would phase-out the deduction for those taxpayers with taxable income in excess of $400,000.

1031 Exchange

Current: Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.

Biden's Plan: Biden would eliminate the availability of this type of tax deferral to everyone with income in excess of $400,000.

Bloomberg reported, citing a senior Biden campaign official, that “a Biden administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of real estate if the capital gains are reinvested in another property. The official also said they would prevent investors from using real-estate losses to lower their income tax bills.”

Itemized Deduction

Current: Taxpayers may deduct 1) the standard deduction, or 2) the sum of the itemized deductions (things like mortgage interest, medical expenses, state and local income and property taxes, and charitable contributions). The TCJA nearly doubled the standard deduction (from $6,350 to $12,400 for single taxpayers, $12,700 to $24,800 for married couples),

Biden's Plan: Biden would reduce a taxpayer’s total itemized by 3% for every dollar that income exceeds $400,000.

In addition, Biden would cap the benefit of itemized deductions at a 28% rate.

Corporate Tax

Current: The hallmark of the TCJA was the reduction in the corporate rate from 35% to 21%.

Biden's Plan: Biden would raise the corporate rate to 28%. In addition, he would implement a new form of the “alternative minimum tax” by requiring corporations with financial statement income in excess of $100 million to —at the very least — pay tax of 15% on its financial statement income.

Estate Tax

Current: When you die, the value of your assets (your estate) is taxed at a rate of 40%. But only assets worth more than $11.58 million are taxed. Also, people who die with unrealized gains don’t have to pay capital-gains taxes, and their heirs only have to pay on gains after the original owner’s death. Mr. Biden would apply capital-gains taxes to those increased asset values at death. The highest-income households would pay capital-gains rates roughly equal to those for ordinary income.

Biden’s Plan: The rate would rise to 45%. Assets taxed go from total assets above $11.58 million to total assets above $3.5 million.

Payroll Taxes

Current: If you earn money through wages or are self-employed, you pay payroll taxes. In the employer-employee context, the employer and employee split a 12.4% tax on earnings up to the Social Security wage base, which in 2020 is $137,700

Biden's Plan: Biden has suggested lifting the cap on the Social Security payroll tax, but once again, only on wages over $400,000. It's not clear if wages from the cap of $137,700 to $400,000 would be charged any additional tax. Above $400,000 would be taxed 6.2% on the wages between $400,000 and $500,000. He or she would also pay the 1.45% Medicare tax on all wages and the 0.9% Obamacare tax on

Summary of Tax Increases:

Biden’s tax plan would raise about $3.33 trillion over the next decade on a conventional basis, and $2.78 trillion after accounting for the reduction in the size of the U.S. economy. While taxpayers in the bottom four quintiles would see an increase in after-tax incomes in 2021 primarily due to the temporary CTC expansion, by 2030 the plan would lead to lower after-tax income for all income levels.

Tax Cuts

Biden’s plan isn’t all about tax increases. Stay tuned for our next article on his potential tax deductions.

He has also proposed a number of cuts, in the form of additional tax credits. Credits are better than deductions, because 1) they reduce tax liability dollar-for-dollar, and 2) they are often refundable, meaning even if you don’t owe taxes, the credit will increase the size of your refund.

Biden is proposing a bevy of new credits, including:

• An expanded child tax credit. The credit, which currently tops out at $2,000 — with only $1,000 of that amount being refundable — would be increased to a maximum of $3,600 per child and would become FULLY refundable.

• An expanded child and dependent care credit. The credit would be increased from a maximum of $3,000 to a maximum of $8,000, or $16,000 per family. Fifty percent of the credit would be refundable.

• A new $5,000 credit would be created for caregivers of elderly relatives,

• A new credit of up to $15,000 for first-time homebuyers,

• An expansion of the existing premium tax credit that makes state-sponsored health plans more affordable,

• A renter’s credit to reduce rent and utilities to 30% of income, and

• An expansion of the earned income credit to older taxpayers.

As a result of these credits, the Biden plan would actually DECREASE the tax bills of most Americans. A family earning between $88,000 and $160,000 would get an average cut of $540, while one with income between $50,000 and $90,000 would get a cut of $920.

The Bottom Line

Under the Biden, federal taxes imposed on corporations and wealthy and higher income taxpayers would increase. However, lower-income individuals’ rates generally would not change and families, in particular, would be entitled to expanded credits and deductions. Also, keep in mind two things:

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