Only the ‘lucky few’ will pay higher taxes under Biden’s plan, analysis finds
President Joe Biden is planning to raise revenue to fund his infrastructure plans through numerous tax hikes that would mostly hit the very wealthiest of Americans, a new analysis found.
“The vast, vast majority of the population will not see any tax increases,” Steve Wamhoff, director of federal tax policy at ITEP, told Yahoo Money. “This plan would really just ask the people who've been very, very successful and have done very well throughout recessions and pandemics… ask those lucky few to pay more.”
Biden’s main tax proposals to increase the capital gains rate and raise the top income tax rate would affect the top 0.7% of Americans, who would see their tax bill increase by $159,000 on average in 2022, according to an analysis by the Institute on Taxation and Economic Policy. By contrast, the bottom 95% of taxpayers would see no change to their tax bill in 2022 if the proposals are implemented.
A higher share of residents in New Jersey, Massachusetts, New York, California, and Connecticut would shoulder the tax burden, with just above 1% of each state’s population potentially seeing a tax increase if Biden’s plans are enacted.
Residents in states including Arkansas, Louisiana, Mississippi, New Mexico, Oklahoma, South Carolina, West Virginia, are the least likely to see a tax increase under Biden’s proposals. Just 0.3% or fewer people in those states face a potential tax hike in 2022, the analysis found.
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“Even when you look at the states where there are more rich people, even then it's a very small part of the population who'd be affected by these tax increases,” Wamhoff said.
Under Biden’s plan, the top earners would pay higher taxes on their income. The proposal restores the top individual income tax rate to 39.6% for taxable income above $400,000; that rate is currently 37%, established by the Tax Cuts and Jobs Act of 2017 during the Trump administration.
Additionally, the top long-term capital gains and qualified dividends tax rate would increase to 39.6% from 23.8%, with an effective rate of 43.4% when the Medicare surcharge is added. The increased rate would apply to those earning over $1 million. Investors currently pay 23.8% as the top capital gains rate along with the 3.8% net investment income tax, known as the Medicare surtax.
The capital gains rate would also vary by state because some states have their own state or local capital gains taxes. For instance, California, New York, Minnesota, and Oregon would have the highest top capital gains rates of 56.7%, 54.3%, 53.3%, and 53.3%, respectively. The average capital gains tax rate would be 48% across the U.S. compared with 29% under current law, according to an analysis by the Tax Foundation, a right-leaning think tank.
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova
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