Revisiting Biden-Harris’ Tax Proposals following Democratic Wins in Georgia Senate Races
The prospect of more profound tax law changes under the Biden administration received a major boost on January 5, 2021 with Democrats winning both Georgia runoff Senate races. The Senate is now expected to be split 50/50 between Democrats and Republicans, with Vice President Elect Kamala Harris expected to side with Democrats to break tie votes. With Democrats also having a majority in the House of Representatives and a Democratic President, the chance of change has increased.
In this News Brief, we revisit some of President-Elect Joe Biden’s tax proposals during the 2020 Presidential campaign, which calls for raising $3.5 trillion of tax revenue over 10-years, to understand what changes may be coming to the tax code.
Following are some of President-Elect Biden’s more significant tax proposals:
Raising the top individual tax bracket back to the 39.6% rate that existed before the Tax Cuts and Jobs Act of 2017 (TCJA) reduced the top tax rate to 37%,
Taxing capital gains over $1 million at ordinary income tax rates of 39.6% versus the current 23.8% rate (so that Warren Buffet does not pay a lower tax rate than his secretary),
Increasing the corporate tax rate to 28% from the current 21%,
Assessing social security tax of 12.4%, consisting of a 6.2% employer paid tax and a 6.2% employee paid tax, on earned income in excess or $400,000, compared to the current law where social security tax is only assessed on the first $137,700 in 2020,
Changes to itemized deductions including increasing the State And Local Tax (SALT) deduction from the current $10,000 cap,
Scaling back or eliminating the Section 199A pass-through deduction under the TCJA,
Eliminating the deduction for pension contributions (such as Defined Benefit and Profit Sharing contributions) and replacing it with a 28% tax credit (having the effect of reducing the benefit to taxpayers in 28%+ tax brackets and increasing the benefit to taxpayers in sub-28% tax brackets),
Changes to gift and estate tax rules that includes eliminating the step up in basis on appreciated stock and reducing the estate and gift tax exemption in half from $11.58 million in 2020 to approximately $5.8 million, indexed for inflation, which was the pre-TCJA exemption level.
Providing significantly expanded child and dependent care tax credits.