An Analysis of Joe Biden’s Tax Proposals

Key Points

• Using the Tax-Calculator (2.9.0) microsimulation model, we estimate that Joe Biden’s pro­posals would raise federal revenue by $3.8 trillion over the next decade (2021–30).
• Biden’s proposals would increase taxes, on average, for households at every income level and make the federal tax code more progressive. His 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 0.06 percent over the next decade, slightly increase GDP the second decade (0.07 percent), and result in a small reduction in GDP in the long run (0.2 percent).
• Although his proposals would raise significant revenue, they would not significantly affect the federal government’s short-run and long-run debt burden.

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Introduction

Joe Biden, former vice president and current Demo­cratic nominee for president, has proposed several indi­vidual income, payroll, and business tax increases aimed at financing new government programs. His proposals would raise taxes on primarily high-income households.

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. As such, the top individual income tax rate would rise from 37 per­cent to 39.6 percent (Table 1). He would phase out Sec­tion 199A for high-income households. He would also reinstate the Pease limitation on itemized deductions.

All these changes would apply to taxpayers with tax­able income over $400,000. His plan would also limit the tax benefit of 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. They 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. His proposals would increase the tax incentive to retire­ment saving for middle- and low-income households.

Biden’s proposals would also raise payroll taxes for high-income earners. His plan 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’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 increase the tax rate on foreign profits US multinational corporations earn by reducing the deduction for global intangible low-taxed income (GILTI) to 25 percent. As a result, the effective tax rate on GILTI would rise to 21 percent. He would also enact a 15 percent minimum tax on larger corporations’ book profits.

His proposals would generally broaden business income taxes by eliminating numerous deductions.

They would also eliminate the deduction for direct-to-consumer drug advertising and deductions for fossil fuel companies, as well as limit several deductions for the real estate industry. Lastly, he would restore the energy investment tax credit.

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