Comparing the Biden and Trump tax plans: Will you pay more?

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Former Vice President Joe Biden says he won’t raise taxes on anyone with annual income of less than $400,000. Meanwhile, President Donald Trump has tweeted, and stated in the second debate, that his Democratic rival would raise taxes to a level never seen before in America.

Both candidates can’t be correct. But neither is entirely wrong, either.

Biden’s tax increases are focused on the wealthy. Add up all his proposed increases — including both higher taxes on income and investment gains — and he would raise the top tax rate to 67 percent on the wealthiest Americans, according to the Tax Foundation. That would be the highest top rate since the 1970s, when it was 70 percent.

Although Biden could indirectly impact some middle-income folks as well, his tax plan includes about $265 a year in additional benefits for average Americans. That includes increase in dependent care credits and a $15,000 tax credit for first-time home buyers.

Factoring in all of Biden’s spending plans to be paid by those higher taxes, a September study from the University of Pennsylvania’s Wharton business school found that middle-income Americans would end up with higher paychecks, not lower ones, under the former vice president’s plan.

Similarly, the economic forecasting arm of debt-rating firm Moody’s concluded that federal spending under Biden would stimulate the economy more than higher taxes would act as a drag, causing GDP to rise 1 percentage point faster a year under Biden’s plan than Trump’s.

All told, Biden’s tax plan is projected to raise as much as $4.1 trillion over a decade. Trump’s more threadbare proposal would cut taxes by an additional $300 billion by the end of his second term, primarily for the wealthy and corporate America. This would follow a more than $2 trillion tax cut he and a GOP-controlled Congress passed in 2017 that cut taxes for Americans making between $40,000 and $75,000 a year by an average of $720, according to analysis from the Tax Foundation, but also largely flowed to corporate and wealthy taxpayers.

Here’s how the two tax plans stack up and how much more, or less, Americans would pay under each.

Would most Americans pay higher taxes under Biden’s plan?

Answer: Not directly. Biden would raise the top marginal tax rate on income over $400,000 from 37% to 39.6%, restoring it to the rate under President Obama. Most Americans — with average annual salary in 2019 of $54,099, according to the Social Security Administration — would continue to pay the same income tax rate. That’s also true for payroll taxes and taxes on investment income, which would be raised for top earners but remain the same for everyone else.

Middle-income Americans could still take an indirect hit from Biden’s tax increases. The issue has to do with corporate taxes, which Biden would like to raise to 28%, from the 21% they were lowered to under Mr. Trump in late 2017. Corporations are not people; most corporate taxes are paid by investors. But companies tend to pass some of the cost of higher taxes on to consumers in the form of higher prices or to workers in the form of lower wages. The question is how much. And on this point, economists disagree. 

The Joint Committee on Taxation has found that as much as 25% of the cost of a corporate tax increase could land on workers. But the tie between taxes and wages is not very strong. Wages for the average worker did rise 3% in 2018 following the late 2017 corporate tax cut, but that wasn’t much more than the 2.6% they had risen the previous year. Record corporate profits meant companies had room to swallow extra costs. 

The Wharton analysis found the impact of a corporate tax increase would lower the average workers’ take-home pay by 0.4 percentage points, or $216 a year. But the top 1% of wage earners would pay nearly $50,000 more a year in income and payroll taxes under the Biden plan.

Would taxes drop further under President Trump?

Answer: Perhaps. Mr. Trump and his advisers a year ago floated the idea of a 15% income tax rate for middle-income Americans, down from the current 22% for individuals making up to $85,000 a year.

But Mr. Trump hasn’t talked much about that recently, and certainly hasn’t made it a big part of his re-election campaign. What’s more, an August analysis from the Tax Foundation said that it would be hard to cut tax rates for the middle class, and much of the benefit in any income rate tax cut would end up going to the wealthiest Americans. 

“The current structure of the tax code makes this particular policy idea difficult,” the group, which describes itself as independent, wrote.

More likely, taxes will gradually rise during Mr. Trump’s second term. That’s because portions of the 2017 tax cuts will begin to expire as early as 2022. Mr. Trump has talked about extending the cuts, but he would need congressional approval for that.

What does it mean for the national debt?

Answer: It’s going to swell no matter who wins the election. Biden’s tax plan would raise as much as $1.4 trillion in four years, according to Moody’s. But he would also spend $3.9 trillion — that’s an increase of $2.5 trillion in the national debt.

Mr. Trump’s second-term plan, on the other hand, is to lower taxes by an additional $300 billion. But remember that the 2017 change under Mr. Trump has already reduced federal tax revenue by about $300 billion a year. Factor that in, and the national debt, because of Mr. Trump’s tax plans, will increase by another $1.5 trillion in his second term. And that’s on top of the $6.5 trillion the debt has already risen in Mr. Trump’s first term, for a potential two-term increase of $8 trillion.

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