Raising taxes will be a given, regardless of who wins the White House — that’s the consensus as the nation deals with the deficit and debt fueled by the pandemic stimulus.
Among Democratic presidential candidate Joe Biden’s top tax moves would be to create a Social Security “donut hole” payroll tax.
As the Tax Foundation explained in its analysis, Biden’s plan imposes a 12.4% payroll tax on income earned above $400,000, evenly split between employers and employees. This revenue would go to the Old-Age, Survivors, and Disability Insurance programs — that is, the Social Security trust funds.
“This would create a ‘donut hole’ in the current Social Security payroll tax, where wages between $137,700, the current wage cap, and $400,000 are not taxed,” the Tax Foundation states.
According to a new analysis by the Wharton School at the University of Pennsylvania, Biden’s tax plan would, in a 10-year window, raise $3.375 trillion in new tax revenue while increasing spending by $5.37 trillion.
Including macroeconomic and health effects, by 2050 the Biden platform would decrease the federal debt by 6.1% and increase GDP by 0.8% relative to current law, Penn Wharton states.
“Almost 80% of the increase in taxes under the Biden tax plan would fall on the top 1% of the income distribution,” according to the analysis.
Under the Biden tax plan, households with adjusted gross income of $400,000 per year or less would not see their taxes increase directly but would see lower investment returns and wages as a result of corporate tax increases, according to the analysis.
Those with AGI at or below $400,000 would see an average decrease in after-tax income of 0.9% under the Biden tax plan, compared to a decrease of 17.7% for those with AGI above $400,000 (the top 1.5%).
Biden’s tax plan, the analysis explains, focuses on raising taxes on corporations, capital income, and ordinary income of high-income filers by:
- Implementing a Social Security “Donut Hole”;
- Repealing elements of the Tax Cuts and Jobs Act (TCJA) for high-income filers;
- Raising the top rate on ordinary income;
- Eliminating stepped-up basis;
- Taxing capital gains and dividends at ordinary rates;
- Limiting itemized deductions; and
- Raising the corporate tax rate.
Max Richtman, president and CEO, National Committee to Preserve Social Security and Medicare, told ThinkAdvisor in an email that the ”‘donut hole’ is actually a temporary gap resulting from a much-needed adjustment of the current Social Security payroll tax wage cap.”
Because of increasing wage inequality, Richtman said, “the number of workers whose earnings exceed the tax cap has been growing, depriving Social Security of trillions of dollars in revenue. Millionaires stop paying into Social Security each February. Adjusting the wage cap is an equitable solution that asks the wealthy to pay their fair share of Social Security payroll taxes, which will help keep the program’s trust fund solvent. Over time, the donut hole will eventually close as the wage cap increases each year.”
Without more revenue, Social Security’s retirement trust fund “will run dry by 2035,” Richtman said. “We support Joe Biden’s proposal to adjust the wage cap and keep the program financially healthy for the future, while also allowing for a long-needed benefit boost for millions of retirees.”
Biden stated recently that he would raise the corporate tax rate from 21% to 28% “on day one.”
Biden told CNN that “the reason I’d make the changes to corporate taxes, it can raise $1.3 trillion if they just started paying 28% instead of 21%.”
The corporate tax rate was slashed from 35% to 21% by the Tax Cuts and Jobs Act — the sweeping tax overhaul enacted in 2017.
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