Joe Biden says his tax plan would increase taxes on the wealthy and offer breaks for the middle class, but at least one of his proposals could boost taxes farther down the income ladder.
A key component of Biden’s plan is that tax hikes will be limited to people who make more than $400,000. He wants to raise the highest individual income tax rate to 39.6% from 37%, restoring the top rate that was in place before the 2017 Tax Cuts and Jobs Act. (In 2020, the 37% top rate kicks in for single taxpayers with taxable income of more than $518,400, or for married couples with taxable income of more than $622,050.) Biden also wants to cap itemized deductions for the wealthiest Americans at 28% and end favorable capital gains rates for anyone with income of more than $1 million. Those taxpayers would pay their ordinary income rate of 39.7% on capital gains and dividends. Currently, investments and other assets held for more than a year are taxed at a rate of 0% to 23.8%, depending on income.
A plan to change the way inherited assets are taxed could have a broader impact. Now, when someone inherits stock, mutual funds or other assets, the cost basis of those assets is stepped up to their value on the date of the original owner’s death. For example, if the original owner purchased shares of stock for $10 and its value was $50 a share when he died, his heirs would only owe taxes on any increase in value over $50 when they sell the shares. Critics of the “step up” say it discourages individuals from selling investments that have increased in value because they can leave them to their heirs, tax-free. But in addition to eliminating a valuable tax break for heirs, eliminating the step-up could create compliance headaches, because heirs would have to track down the original cost of assets that may have been owned for many years.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Biden has also proposed a suite of tax breaks for low- and middle-income families, including:
- An $8,000 tax credit to help offset the costs of child care.
- A tax exclusion for student loans that have been forgiven. Currently, if a borrower’s loans are forgiven, the amount is treated as taxable income (there are exceptions for borrowers who are eligible for certain public service loan programs).
- A refundable tax credit for low- and middle-income workers who contribute to IRAs and employer-provided retirement savings plans. Biden says the current system, which allows all workers to deduct their contributions, primarily benefits wealthier workers.
- Catch-up contributions to retirement plans for caregivers of any age who leave the workforce for at least a year. Currently, catch-up contributions are limited to workers age 50 or older. Biden also proposes a $5,000 tax credit for family caregivers.
Trump’s tax plan. The Trump administration’s plan to release a package of tax proposals was put on hold as other developments—the coronavirus pandemic in particular—have taken center stage. But based on Trump’s public statements, one of his top tax priorities in his second term would be to make provisions in the Tax Cuts and Jobs Act permanent. Unless Congress acts, most of the individual tax cuts included in the act will expire in 2025.
Trump has also expressed an interest in providing more tax relief for middle-class workers. Earlier this year, National Economic Council Director Larry Kudlow said Trump was considering a “Tax Cuts 2.0” that would provide a second round of tax cuts focused on the middle class.
In the short term, though, most of Trump’s tax proposals are focused on stimulating the economy, which has been devastated by the pandemic. He has proposed stimulating the economy by cutting payroll taxes, which would increase the size of workers’ paychecks. He has also suggested he would support a $4,000 tax credit for Americans who travel domestically. The travel industry, which has been hard hit by the pandemic, says such a credit would encourage people to take vacations, but it’s unlikely to gain much support in Congress.
Sandra Block, Lisa Gerstner, Nellie S. Huang and Anne Smith contributed to this story.
-
Now Is Better Than Ever for Reshopping Car Insurance, According to New StudyThe latest J.D. Power study shows that car insurance is a buyer’s market right now, as providers focus on retaining customers.
-
Stock Market Today: Wall Street Is Standing ByThe waiting is the hardest part with trade war truce talks underway and inflation data on the way.
-
The Trump GOP Tax Bill Could Worsen California Cost of LivingState Tax Energy bills in the Golden State may shock you if Republican lawmakers in Congress remove certain energy tax credits through Trump's 'big, beautiful bill.'
-
Texas Property Tax Relief in 2025? What to KnowProperty Tax Texas residents could get major relief from property taxes this year. Here's a breakdown of the tax cuts.
-
Summer Programs for Kids at Risk Due to Trump Grant Funding CutsTax Dollars Some after-school and summer programs may begin to cut back hours or shut down entirely due to federal cuts to volunteer programs.
-
Homeschoolers Could Soon Save on Expenses With 529 PlansSavings Accounts A new House GOP bill could change how you save for your child's homeschool education. Find out how.
-
Ohio Announces Two-Week Sales Tax Holiday Amid Tariffs, High PricesState Tax Ohioans won't want to miss out on savings as pressure from tariffs spikes prices.
-
Five ‘Big Beautiful Bill’ Tax Changes to Watch in the SenateTax Policy The House passed its version of Trump’s "One Big, Beautiful Bill." Here’s what to look for as Senate Republicans take up the mega legislation.
-
New GOP Car Loan Tax Deduction: Which Vehicles and Buyers QualifyTax Breaks To fulfill Trump's campaign promise, House GOP lawmakers want to offer a tax deduction for car loan interest. How would it work?
-
What Do Trump's Pardons for Rich Tax Evaders Mean for IRS Enforcement?Tax Law Recent pardons raise questions about tax fairness and the difference between tax avoidance and evasion.
