The tax landscape in the United States is set to change significantly under the Biden Administration. With a new administration comes new tax policies, and it’s important for individuals and businesses to understand how these changes will affect them.
In this blog post, we’ll break down the most important tax changes proposed by the Biden Administration and examine their potential impact on taxpayers and the economy as a whole. From corporate tax rates to capital gains tax and personal income tax, we’ll cover everything you need to know to stay informed about the tax changes under the Biden Administration.
Additionally, for those who want to stay on top of the latest tax news, this blog post will also provide a comparison to the previous administration’s tax policies. With our clear and concise analysis, you’ll be able to make informed decisions about your taxes and financial planning.
So, whether you’re a business owner, investor, or individual taxpayer, keep reading to learn more about the tax changes under the Biden Administration.
Corporate Tax Rates
Increase In Corporate Tax Rate From 21% To 28%
One of the most significant tax changes proposed by the Biden Administration is an increase in the corporate tax rate from 21% to 28%. This would be a significant change for businesses of all sizes and could have a big impact on the economy. In this section, we’ll explain what this increase in the corporate tax rate means for businesses and how it compares to previous administration’s tax policies.
First, it’s important to understand that the corporate tax rate is the rate at which businesses pay taxes on their profits. Under the current tax code, the corporate tax rate is 21%. However, the Biden Administration has proposed increasing this rate to 28%. This would mean that businesses would have to pay more in taxes on their profits, which could have a significant impact on their bottom line.
This increase in the corporate tax rate is expected to raise significant revenue for the government, which could be used to fund infrastructure and social programs. However, it’s important to note that some experts argue that this increase could also discourage businesses from investing and hiring, which could negatively impact the economy.
It’s also worth noting that the proposed rate of 28% is lower than the corporate tax rate before the 2017 Tax Cuts and Jobs Act, which lowered it to 21%.
Businesses should expect to pay more taxes with this increase, which could lead to higher prices for consumers, lower profits, and fewer jobs. It’s important for businesses to stay informed about the tax changes and to consult with a tax professional to understand how these changes will impact them specifically. Additionally, the new administration is also proposing to increase the global minimum tax to 21%, which would affect multinational companies that take advantage of lower tax rates in other countries.
Impact On Businesses And The Economy
The proposed increase in the corporate tax rate from 21% to 28% under the Biden Administration is likely to have a significant impact on businesses and the economy as a whole. In this section, we’ll explore the potential consequences of this change and how it compares to previous administration’s tax policies.
First, it’s important to note that businesses will likely see a decrease in profits as a result of the increased corporate tax rate. This could lead to higher prices for consumers, lower profits for shareholders, and fewer jobs for employees. Additionally, businesses may also reduce their investments in new projects and expansion plans, which could negatively impact the economy.
The increase in the corporate tax rate could also discourage businesses from relocating or expanding in the United States, which could lead to a decrease in economic growth. Multinational companies could also be affected by this change, as they would be less inclined to bring their profits back to the US to pay the higher tax rate.
The Biden Administration argues that the increase in corporate tax rate is necessary to fund infrastructure and social programs, which would be beneficial for the economy in the long run.
Additionally, the proposed increase in the global minimum tax to 21%, would affect multinational companies that take advantage of lower tax rates in other countries and could prevent companies from shifting profits to countries with lower tax rates.
Capital Gains Tax
Increase In Tax Rate For Individuals Earning Over $1 Million
One of the most notable tax changes proposed by the Biden Administration is an increase in the tax rate for individuals earning over $1 million. This change would affect a small group of taxpayers but could have a significant impact on their financial planning and investment strategies. In this section, we’ll explore the proposed increase in the tax rate for high-income earners and how it compares to previous administration’s tax policies.
Under current tax law, the top marginal tax rate for individuals is 37%. The Biden Administration has proposed increasing this rate to 39.6% for individuals earning over $1 million per year. This change would affect a small number of taxpayers but would have a significant impact on their overall tax bill. Additionally, the plan includes increasing the capital gains tax rate for those earning over $1 million, from 20% to 39.6%.
The rationale behind this proposal is to generate more revenue for the government, which could be used to fund infrastructure and social programs. The Biden Administration argues that increasing the tax rate for high-income earners is a way to make the tax system more progressive and ensure that the wealthiest Americans pay their fair share.
It’s worth noting that the proposed rate of 39.6% is the same as it was before the 2017 Tax Cuts and Jobs Act, which lowered it to 37%. Additionally, the previous administration also proposed a number of changes to individual tax rates, including increasing the standard deduction and lowering the tax rate for some income brackets.
The proposed increase in the tax rate for high-income earners could have a significant impact on their financial planning and investment strategies. It’s important for individuals earning over $1 million to stay informed about these changes and to consult with a tax professional to understand how they will be affected specifically.
Impact On Investors And The Stock Market
First, it’s important to note that high-income earners, who are also likely to be significant investors, will likely see a decrease in their investment returns as a result of the increased tax rates. This could lead to a decrease in demand for stocks and other investments, which could negatively impact the stock market. Additionally, the increase in the capital gains tax rate could also discourage investors from selling their investments, which could lead to a decrease in trading activity in the stock market.
The Biden Administration argues that the increase in tax rates for high-income earners and capital gains is necessary to generate more revenue for the government and make the tax system more progressive. Additionally, the increase in the global minimum tax to 21%, would affect multinational companies that take advantage of lower tax rates in other countries and could prevent companies from shifting profits to countries with lower tax rates.
Personal Income Tax
Changes To The Tax Brackets And Rates For Individuals
The Biden Administration changes to the tax brackets and rates for individuals in their tax plan. These changes, if passed, would have a significant impact on taxpayers and their take-home pay. In this section, we’ll break down the proposed changes to the tax brackets and rates for individuals and how they compare to previous administration’s tax policies.
Currently, there are seven tax brackets for individuals, with rates ranging from 10% to 37%. The Biden Administration has proposed increasing the top marginal tax rate for individuals earning over $400,000 to 39.6%. This change would affect a small number of taxpayers but would have a significant impact on their overall tax bill. Additionally, the plan includes increasing the capital gains tax rate for those earning over $1 million, from 20% to 39.6%.
The Biden Administration has also proposed creating a new tax bracket of 12.4% for Social Security payroll tax, which would be applied to earnings above $400,000. This change would be used to fund the Social Security program, and would not affect the majority of taxpayers.
Impact On Taxpayers And Their Take-Home Pay
First, it’s important to note that the increase in the tax rate for individuals earning over $400,000 to 39.6%, and the increase in the capital gains tax rate for those earning over $1 million, would result in higher taxes for a small group of taxpayers. This could lead to a decrease in take-home pay for these individuals, which could negatively impact their financial planning and investment strategies. High-income earners may also see a decrease in their disposable income, which could lead to a decrease in consumer spending and economic growth.
Additionally, the proposed increase in the Social Security payroll tax rate of 12.4% for earnings above $400,000 would also result in a decrease in take-home pay for high-income earners, but this change is intended to fund the Social Security program, and would not affect the majority of taxpayers.
The proposed changes to the tax brackets and rates for individuals could have a significant impact on taxpayers and their take-home pay. It’s important for individuals to stay informed about these changes and to consult with a tax professional to understand how they will be affected specifically.
Other Tax Changes
Child And Dependent Care Tax Credit
The Biden Administration has made several changes to the Child and Dependent Care Tax Credit (CDCTC) in their tax plan. These changes, if passed, would provide additional tax relief for families with children and dependents who need care. In this section, we’ll explain the proposed changes to the CDCTC and how it compares to previous administration’s tax policies.
Currently, the CDCTC allows taxpayers to claim a credit of up to 35% of their eligible child and dependent care expenses, with a maximum credit of $3,000 for one qualifying individual and $6,000 for two or more qualifying individuals. The Biden Administration has proposed several changes to the CDCTC to make it more generous and accessible to more families.
The first proposed change is to increase the credit to 50% of eligible expenses, with a maximum credit of $8,000 for one child and $16,000 for two or more children. This would provide a significant increase in tax relief for families with children and dependents who need care.
Another proposed change is to make the credit fully refundable, which would allow families who have little or no tax liability to still receive the full benefit of the credit. The previous administration’s policy did not make this credit fully refundable.
Additionally, the Biden Administration has proposed to increase the income limits for the credit. The current income limit for the credit is $15,000 for married couples filing jointly and $3,000 for all other taxpayers. The proposed changes would increase these limits to $125,000 for married couples filing jointly and $75,000 for all other taxpayers.
Expansion Of Earned Income Tax Credit
The Biden Administration has proposed an expansion of the Earned Income Tax Credit (EITC) in their tax plan. This change, if passed, would provide additional tax relief for low-income workers and families. In this section, we’ll explain the proposed expansion of the EITC and how it compares to previous administration’s tax policies.
Currently, the EITC is a refundable tax credit for low-income workers and families. The credit amount is based on the taxpayer’s earned income and the number of qualifying children. The Biden Administration has proposed several changes to the EITC to make it more generous and accessible to more workers and families.
The first proposed change is to increase the maximum credit amount for childless workers. Currently, the maximum credit for childless workers is $529. The Biden Administration has proposed to increase this amount to $1,500. This would provide a significant increase in tax relief for childless workers and families with no or fewer dependents.
Another proposed change is to expand the eligibility for the credit to workers over the age of 65. Currently, workers over the age of 65 are not eligible for the EITC. The proposed changes would make workers over the age of 65 eligible for a smaller credit amount.
Additionally, the Biden Administration has proposed to increase the income limits for the credit. The current income limit for the credit is $15,570 for childless workers, and it varies for families with children. The proposed changes would increase these limits to $21,000 for childless workers and $30,000 for families with children.
Changes To The Estate Tax
The Biden Administration has proposed several changes to the estate tax in their tax plan. These changes, if passed, would impact the taxation of estates and estates planning for wealthy individuals. In this section, we’ll explain the proposed changes to the estate tax and how it compares to previous administration’s tax policies.
Currently, the estate tax is a tax on the transfer of property at death. The tax is imposed on estates with a value greater than the estate tax exemption, which is $11.7 million per person in 2021. The Biden Administration has proposed several changes to the estate tax to generate more revenue for the government and make the tax system more progressive.
The first proposed change is to reduce the estate tax exemption to $3.5 million per person. This would subject more estates to the estate tax and increase the tax liability for wealthy individuals.
Another proposed change is to increase the top estate tax rate from 40% to 45%. This would also increase the tax liability for wealthy individuals.
Additionally, the Biden Administration has proposed to eliminate the step-up in basis for capital gains at death. Currently, when an asset is inherited, the basis of the asset is “stepped-up” to its fair market value at the time of death, which can significantly reduce or eliminate the capital gains tax when the asset is later sold. The proposed changes would eliminate this “step-up” in basis, which would subject inherited assets to capital gains tax.
Impact Of These Changes On Different Groups Of Taxpayers
First, it’s important to note that the proposed increase in the tax rate for individuals earning over $400,000 to 39.6%, and the increase in the capital gains tax rate for those earning over $1 million, would result in higher taxes for high-income earners. This could lead to a decrease in take-home pay and investment returns for these individuals, which could negatively impact their financial planning and investment strategies.
For low-income workers and families, the proposed expansion of the Earned Income Tax Credit (EITC) would provide additional tax relief. The proposal to increase the maximum credit amount for childless workers, expand the eligibility for the credit to workers over the age of 65, and increase the income limits for the credit, would make the EITC more accessible to more workers and families. This would provide additional tax relief and increase their take-home pay.
For families with children and dependents who need care, the proposed changes to the Child and Dependent Care Tax Credit (CDCTC) would provide additional tax relief. The proposal to increase the credit to 50% of eligible expenses, with a maximum credit of $8,000 for one child and $16,000 for two or more children, and make it fully refundable, would make the CDCTC more generous and accessible to more families.
Conclusion
In conclusion, the proposed tax changes under the Biden Administration are likely to have a significant impact on different groups of taxpayers. The proposed increase in the tax rate for individuals earning over $400,000 to 39.6%, and the increase in the capital gains tax rate for those earning over $1 million, would result in higher taxes for high-income earners, which could lead to a decrease in take-home pay and investment returns. On the other hand, the proposed expansion of the Earned Income Tax Credit (EITC) and Child and Dependent Care Tax Credit (CDCTC) would provide additional tax relief for low-income workers and families with children and dependents who need care, which would increase their take-home pay.
Additionally, the proposed changes to the estate tax, including reducing the estate tax exemption to $3.5 million per person, increasing the top estate tax rate from 40% to 45%, and eliminating the step-up in basis for capital gains at death, would generate more revenue for the government and make the tax system more progressive.
It’s worth noting that these proposed tax changes are still under discussion and not yet passed into law, so it’s important for individuals and families to stay informed about these changes and consult with a tax professional to understand how they will be affected specifically. As the debate about these changes continues, taxpayers should stay informed about the latest developments and be prepared for any changes that may come.
