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).
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.
