If you’ve been paying attention to the news, you may be aware that the United States of America is about to get a new president. And if you’ve been paying close attention to that news, you may have heard a bit of chatter about taxes. And if that’s the case, you probably have some questions. Is Biden going to raise taxes? How soon would these changes happen? And what’s with all those memes of popcorn ceilings and wood paneling?
Let’s take a closer look at what the president-elect has outlined.
The big number: $400,000
The biggest attention-grabber in Biden’s pre-election tax plan is the plan to raise taxes on those making over $400,000 a year. This includes raising individual income tax, capital gains tax, and payroll taxes. The opposition party has used this part of the plan to make dire claims about widespread, crippling taxation, but it should surprise absolutely no one that these claims have no basis in reality. The truth is that Biden has announced no plans to tax anyone making under this amount, which means that 99 out of 100 people won’t see their taxes raised by his plan (unless he breaks his word, or Congress somehow gets it twisted).
This is where the memes come in.
In an effort to stop the spread of misinformation regarding tax policy, internet users have been cranking out an array of often amusing memes explaining exactly who should not be worried about having their taxes raised. This includes anyone with a white refrigerator, a sweat-stained pillow, wood paneling on their walls, or a popcorn ceiling. While this is clearly meant to be humorous, it is basically true. If you don’t make over $400,000 a year, you’re not going to see your taxes raised… unless the current tax plan stays in place, in which case there are planned increases to your tax rate over the next six years.
Other planned changes:
Here’s what else is in the proposed plan, courtesy of TaxFoundation.org:
- Imposes a 12.4 percent Old-Age, Survivors, and Disability Insurance (Social Security) payroll tax on income earned above $400,000, evenly split between employers and employees. This would create a “donut hole” in the current Social Security payroll tax, where wages between $137,700, the current wage cap, and $400,000 are not taxed.
- Reverts the top individual income tax rate for taxable incomes above $400,000 from 37 percent under current law to the pre-Tax Cuts and Jobs Act level of 39.6 percent.
- Taxes long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent on income above $1 million and eliminates step-up in basis for capital gains taxation.
- Caps the tax benefit of itemized deductions to 28 percent of value for those earning more than $400,000, which means that taxpayers earning above that income threshold with tax rates higher than 28 percent would face limited itemized deductions.
- Restores the Pease limitation on itemized deductions for taxable incomes above $400,000.
- Phases out the qualified business income deduction (Section 199A) for filers with taxable income above $400,000.
- Expands the Earned Income Tax Credit (EITC) for childless workers aged 65+; provides renewable-energy-related tax credits to individuals.
- Expands the Child and Dependent Care Tax Credit (CDCTC) from a maximum of $3,000 in qualified expenses to $8,000 ($16,000 for multiple dependents) and increases the maximum reimbursement rate from 35 percent to 50 percent.
- For 2021 and as long as economic conditions require, increases the Child Tax Credit (CTC) from a maximum value of $2,000 to $3,000 for children 17 or younger, while providing a $600 bonus credit for children under 6. The CTC would also be made fully refundable, removing the $2,500 reimbursement threshold and 15 percent phase-in rate.
- Reestablishes the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market. Biden’s homebuyers’ credit would provide up to $15,000 for first-time homebuyers.
- Expands the estate and gift tax by restoring the rate and exemption to 2009 levels.
Biden’s plan also includes the following proposed business tax changes:
- Increases the corporate income tax rate from 21 percent to 28 percent.
- Creates a minimum tax on corporations with book profits of $100 million or higher. The minimum tax is structured as an alternative minimum tax—corporations will pay the greater of their regular corporate income tax or the 15 percent minimum tax while still allowing for net operating loss (NOL) and foreign tax credits.
- Doubles the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of US firms from 10.5 percent to 21 percent.
- In addition to doubling the tax rate assessed on GILTI, Biden proposes to assess GILTI on a country-by-country basis and eliminate GILTI’s exemption for deemed returns under 10 percent of qualified business asset investment (QBAI).
- Establishes a Manufacturing Communities Tax Credit to reduce the tax liability of businesses that experience workforce layoffs or a major government institution closure
- Expands the New Markets Tax Credit and makes it permanent.
- Offers tax credits to small business for adopting workplace retirement savings plans.
- Expands several renewable-energy-related tax credits, including tax credits for carbon capture, use, and storage as well as credits for residential energy efficiency, and a restoration of the Energy Investment Tax Credit (ITC) and the Electric Vehicle Tax Credit. The Biden plan would also end tax subsidies for fossil fuels.
Other proposals not modeled due to a lack of detailed information include:
- Imposing a new 10 percent surtax on corporations that “offshore manufacturing and service jobs to foreign nations in order to sell goods or provide services back to the American market.” This surtax would raise the effective corporate tax rate on this activity up to 30.8 percent.
- Establishing an advanceable 10 percent “Made in America” tax credit for activities that restore production, revitalize existing closed or closing facilities, retool facilities to advance manufacturing employment, or expand manufacturing payroll.
- Equalizing the tax benefits of traditional retirement accounts (such as 401(k)s and individual retirement accounts) by providing a refundable tax credit in place of traditional deductibility.
- Eliminating certain real estate industry tax provisions.
- Expanding the Affordable Care Act’s premium tax credit.
- Creating a refundable renter’s tax credit capped at $5 billion per year, aimed at holding rent and utility payments at 30 percent of monthly income.
- Increasing the generosity of the Low-Income Housing Tax Credit.