An analysis of Joe Biden’s tax proposals, October 2020 update | American Enterprise Institute

Key Points

• Using the Tax-Calculator (3.0.0) microsimulation
  model, we estimate that Joe Biden’s propos­als would raise federal revenue by
  $2.8 trillion over the next decade (2021–30).
• The majority of new federal revenue would come
  from businesses and corporations ($1.9 tril­lion). The remaining revenue would
  come from individual income and payroll tax increases ($616.8 billion) and an
  increase in estate and gift taxes ($276.4 billion).
• In 2021, Biden’s proposals would increase taxes,
  on average, for the top 5 percent of households and reduce taxes on households
  in the bottom 95 percent. In 2030, Biden’s proposals would increase taxes, on
  average, for households at every income level, but tax increases would
  primarily fall on the top 1 percent of income earners.
• Using the open-source OG-USA (0.6.2) model, we
  estimate that Biden’s proposals would reduce gross domestic product (GDP) by
  0.16 percent over the next decade, slightly increase GDP the second decade
  (0.19 percent), and result in a small reduction in GDP in the long run (0.18
  percent).

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Introduction

Joe
Biden, the Democratic candidate for president, has proposed several individual
income, payroll, estate, and business tax increases aimed at financing new
govern­ment programs and tax credits. (A full list of proposals can be found in
Appendix B.)

His proposals would repeal major provisions of the 2017 Tax Cuts
and Jobs Act (TCJA) that reduced taxes for high-income households. Statutory
tax rates and brackets would revert to pre-TCJA levels for taxpayers with
taxable income over $400,000. He would also phase out Section 199A for
high-income households and reinstate the Pease limitation on itemized
deductions.

Biden would repeal the $10,000 cap on the state and local tax
(SALT) deduction but limit the tax benefit of all itemized deductions to 28
percent. Further, he would tax capital gains and dividends as ordinary income
for taxpayers who report $1 million or more and tax capital gains at death,
subject to certain exclusions.

His
proposals would enact or expand several tax credits. He would extend the earned
income tax credit (EITC) for childless filers to individuals over age 65 and
reinstate the tax credit for residential energy effi­ciency. He would
reintroduce and expand the first-time homebuyer credit. In addition, he would
increase the tax incentive for retirement saving for middle- and low-income
households.

Biden’s
proposals would raise payroll taxes for high-income earners. He would raise the
Old Age, Survivors, and Disability Insurance (OASDI) payroll tax of 12.4
percent by applying it to earnings over $400,000.

Biden
would expand the estate and gift tax by revert­ing the rate and exemption to
2009 levels.

Biden’s proposals would raise business
income taxes by both increasing the corporate tax rate and broad­ening the
business tax base. Under his proposals, the corporate income tax
rate would rise from 21 percent to 28 percent. His proposals would also reform
the way foreign profits of US multinational corporations are taxed by reducing
the deduction for global intangible low-taxed income (GILTI) to 25 percent,
repealing the 10 percent qualified business asset investment (QBAI) exemption,
and applying GILTI on a country-by-country basis. He would also enact a 15
percent mini-mum tax on larger corporations’ book profits.

His
proposals would raise taxes on several specific industries. He would eliminate
the deduction for direct-to-consumer drug advertising, limit deductions for
fossil fuel companies and the real estate industry, and introduce a financial
risk fee. He would also restore, enact, and expand a number of green energy,
housing, and manufacturing tax credits.

Biden’s
proposals include several provisions aimed at discouraging companies from
“offshoring” produc­tion. He would enact a 10 percent surtax on the foreign
profits of US firms that import goods and services into the United States,
eliminate deductions for “offshoring” expenses, and enact a 10 percent tax
credit for “onshor­ing” expenses.

Lastly, Biden has proposed two temporary tax pol­icies to address the COVID-19 recession. He would temporarily expand the child tax credit from $2,000 to $3,000, make the credit fully refundable, and provide an additional $600 credit for young children. He would also repeal the temporary suspension of the excess loss limitation passed as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

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