According to Joe Biden’s tax plan, state and local marginal tax rates (SALT) will reach new highs nationwide, which could lead to lower investment and corporate bankruptcies, conservative think tanks claim.
The tax proposal of the Democratic presidential candidate provides for an increase in the top rate of income tax for individuals to 39.6 percent and an increase in the corporate tax rate to 28 percent.
President Donald Trump tweeted last week: “Don’t forget, BIDEN will raise your taxes at an unprecedented level. This will not only be very costly for you, it will also destroy our economy, which will come back very quickly”.
Impartial think tanks, however, argue that only a small percentage of taxpayers will face a tax increase, affecting mainly high-income households, while middle-class families are expected to see tax cuts under the policy proposed by Biden.
Marginal and average tax rates – how they differ
A taxpayer’s average tax rate (or effective tax rate) is the portion of income that he or she pays in taxes. In contrast, a taxpayer’s marginal tax rate is the tax rate applied to the last dollar of income. Taxpayers’ average tax rates are lower – usually much lower – than their marginal tax rate.
Source: The Center on Budget and Policy Priorities (CBPP)
A report earlier this month by the Institute on Taxation and Economic Policy (ITEP), a non-partisan think tank based in Washington, D.C., stated that “Only 1.9 percent of taxpayers would experience an increase in direct taxes (an increase in either income tax, payroll tax, or both) if Biden’s tax proposals were to take effect in 2022. The percentage of taxpayers affected in each state would range from a low of 0.6 percent in West Virginia to a high of 3.7 percent in Connecticut.
The ITEP report, which looked at the impact of Biden’s proposed increases in personal income tax and payroll taxes for 2022, provided an overview of the “percentage of tax changes” in seven different income groups (from the richest 1 percent to the poorest 20 percent of the country).
The report showed that 97 percent of the tax increase under Biden’s tax plan would be paid by the richest 1 percent. According to the ITEP report, total taxes would increase by about $289 billion, of which about $279 billion would be paid by the richest 1 percent.
Speaking to Tekk.tv, Steve Wamhoff, the director of federal tax policy at the ITEP and co-author of the latest ITEP report, said: “In other words, if we look at the taxes that individuals pay directly, we find that Biden would increase them for less than two percent of Americans, and this figure does not vary much from state to state. Even in the richest states, this figure would not even reach four percent. They would have to be among the lucky few who would pay more according to Biden’s plan”.
A report by the University of Pennsylvania’s Penn Wharton Budget Model (PWBM) last month, updated Wednesday, also noted that “Under the Biden tax plan, households with an adjusted gross income (AGI) of $400,000 or less per year would not increase their taxes directly, but would have lower investment returns and wages as a result of corporate tax increases.
“Those with an AGI of $400,000 or less would see an average drop in after-tax income of 0.9 percent under the Biden tax plan, compared to a 17.7 percent drop for those with an AGI over $400,000 (the top 1.5 percent),” the report said.
Under Biden’s tax policy, the federal marginal effective tax rates (EMTRs) would increase for high-income households, while those below the $400,000 income bracket would experience no change in the federal EMTR according to the PWBM.
Jason Furman, a non-resident senior fellow at the Peterson Institute for International Economics (PIIE), a non-partisan think tank based in the capital, told Tekk.tv: “Joe Biden’s tax proposals would lower taxes for middle-class families, especially those with children, while those below the $400,000 income bracket would be raised for households with incomes above $400,000.
Furman noted that, in general, states with more high-income families, such as New York, Connecticut and California, would face larger tax increases.