Biden's Tax and Spending Plans
The Biden Administration has proposed $4.1 trillion in new spending by two separate bills that many project to cost in excess of $5 trillion. If that sounds like a lot of money, it is—5 trillion seconds is 157,730 years. Five trillion dollar bills would stretch from the earth to the sun and back to the earth two times and some. It would take a military jet flying at the speed of sound, 70 years to reel out dollar bills equal to $5 trillion. The height of a stack of $5 trillion worth of one dollar bills would measure 344,330 miles.
The Administration intends to pay for this spending by tax increases, tax audits and other enforcement actions. The impact of these tax changers is estimated to increase Treasury revenues by $1 to $2 trillion. Who will be affected—everyone in one way or another. The tax changes to individuals, without enforcement measures, actually reduce federal revenue by about $300 billion over the next ten years, because of child credits and other credits to low-income taxpayers. However, tax changes for corporations will increase revenue by about $1.7 trillion over the next 10 years.
It is projected that 1.4 million small businesses will pay more taxes along with 13 million individuals. Of course, its not just those that pay more in taxes that will feel the brunt of the additional taxes. On the economic front, it is thought that our Gross Domestic Product will decline by 1% along with a decline in jobs and worker’s wages. On top of that, the spending will likely cause even more inflation and we all pay for that. The Joint Tax Committee projects that the middle class will pay for 2/3rds of the tax increase. It always seems that the middle class pays for tax increases-one way or another.
The after-tax incomes of the bottom 25% would increase by 17% while the wealthy would see a decrease in their after-tax incomes. However, the tax plan will result in a smaller economy that will reduce everyone’s after-tax incomes, but the bottom half should still see a net benefit. Although, the impact of inflation has not been factored into the equation.
Individual Changes
Top marginal income tax rate raised from 37% to 39.6% (plus 3.8% Net Investment Income Tax).
IRS provided funding for audits and reporting (e.g., bank account information).
Additional tax credits for children (with income limits) and other credits for low-income taxpayers.
Long-term capital gains taxed as ordinary income for high-income taxpayers.
New tax on unrealized gains at death.
Limits on like-kind exchanges.
Limits on business pass-through losses for individuals.
Corporate Changes
Federal Corporate tax rate is raised from 21% to 28%.
Raise the tax on Global Intangible Low Tax Income from 10.5% to 21% with other changes.
Impose a minimum tax at 15% of book income on corporations with over $2billion in net income.
Repeal or restrict many deductions, including many targeting the energy sector.
The long-term impact of Biden’s proposals reduce GDP by about 1.0%, reduce wages by about 1.0% and eliminate close to 200,000 jobs. The largest negative impacts on the economy come from the raise in corporate tax rates, the 15% minimum tax on corporate book income, raising capital gain rates and additional taxes on pass-through business income.
Bowman Law Firm, Gene M. Bowman
Attorney, Huntsville, Alabama
