As President Trump vowed when he took office in 2017, he reduced the tax rates, both for businesses and for individuals. Now, with the election just a week away, people are starting to wonder about the Biden tax plan. Everyone assumes taxes will increase (as they usually do with democratic presidents), but by how much? How will each person be affected if Joe Biden is elected the next president of the United States?
The Biden Tax Plan – Initial Disclaimers
Just to state the obvious here – someone’s vote should not be purely based on their personal tax rate and then simply choosing the lowest one. Vote for your beliefs, and choose the candidate that aligns with your future America.
Also, I am not a tax professional. But, I have read the plans, heard the debates, and have spent many hours trying to understand the tax changes that may come with a new Biden administration.
Finally, the tax tables below are the recent updates for 2021. Whether they will change based on who is president is yet to be decided. So take this just as a tool for comparison, not for the exact rates and figures of each candidate for the 2021 tax season.
Joe Biden is a man for the working class, not the upper class (as he accuses President Trump of being). So his plans largely relate to raising taxes on high income earners and providing more relief to the lower and middle class.
The major parts of his plan involve:
- income tax rates,
- capital gains tax,
- estate taxes,
- child credits, and
- corporate tax rates
During the Trump administration, taxes were reduced for many. Mr. Biden states that he will likely leave the reduced rates alone for the lower income earners, but he proposes to raise the rate for single filers earning more than $400,000 a year, and for married couples earning more than $628,300 a year.
The maximum income tax rate is 37%. Biden’s plan would raise this rate to 39.6%.
See the impact within the tax tables below.
Single Filers Tax Bracket
Married Filers Tax Bracket
Capital Gains Tax
What’s one sign that you’re truly wealthy? Not that you can earn a massive income, but that you’re earning loads of money from investments. So, naturally, the Biden administration has targeted a high tax rate on long term capital gains (ie. earnings on investments held longer than 12 months).
Under the Trump administration, the highest possible long-term capital gains tax rate was 20%. Under the Biden administration, anyone earning more than $1,000,000 of long term capital gains throughout the year will be subject to a 39.6% tax, not the 20% tax rate.
See the updated chart below.
In 2021, if someone passes away and leaves $11.7 million to their child, there are no federal taxes owed on that inheritance. But, Biden is proposing to change that number. Instead of $11.7 million, his number would likely be in the camp of $5 million.
In other words, if a person passes away and his/her estate is worth more than $5 million, taxes will be owed on that estate.
Child Tax Credit
Under the Trump administration, the child tax credit was $2,000 per child. Meaning, if you owed $8,000 on the year but have a child, you now owe just $6,000.
Under a Biden administration, he’s proposing to increase the child tax credit to $3,000 per child. So, instead of owing $8,000, you now owe just $5,000 in taxes.
As you probably already gathered, if you have multiple children, this tax treatment can really make a big difference!
Corporate taxes went down dramatically in 2017 – from 30%+ down to 21%. Biden is proposing to bump that rate up again – to 28%.
The Biden Tax Plan – Hurting or Helping?
When looking strictly at the tax brackets under Joe Biden, they really aren’t much different from the tax rates under President Trump. It’s just the upper end of the incomes that are impacted. And then he’s a little more harsh on taxing companies and making them pay their fair share. Overall, I was actually surprised.
What’s your reaction to the plans outlined above? Do you approve of the Biden Tax Plan?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.