During the 2020 campaign, then-candidate Joe Biden promised to raise taxes on wealthy Americans and big corporations. He said it was needed to pay the ever-growing mega-tab for COVID-19 stimulus and to jog the economy with credits for working families. But not all economists and policy experts are cheering for the first major tax increase since 1993.
Thomas L. Hogan, Ph.D., a senior research fellow at the economic research and advocacy think tank American Institute for Economic Research, is one of the many experts who are unambiguous in their feelings on the matter.
“Biden’s tax proposal would be a disaster for small businesses, minorities and low-skilled workers,” Hogan said.
What’s in Biden’s Tax Plan?
According to the nonpartisan, nonprofit Tax Foundation, the president’s proposal includes a collection of significant tax increases both for wealthier individuals and for corporations. It would roll back key portions of Donald Trump’s signature 2017 Tax Cuts and Jobs Act while also expanding or restoring the child tax credit, earned income tax credit, the first-time homebuyer’s tax credit and other important tax breaks for working families.
For individuals earning more than $400,000, the plan would:
- Impose a 12.4% Social Security payroll tax, split between employer and employee
- Return the top tax rate to 39.6%, where it was before the TCJA slashed it to 37%
- Tax capital gains at the highest income level (39.6%) for income over $1 million
- Limit itemized and qualified business deductions
- Bring estate and gift taxes back to their higher 2009 rates
For businesses and corporations, the plan would:
- Raise the corporate income tax to 28% from 21%, where it’s been since the TCJA reduced it from 35%
- Add a 15% minimum book tax
- Remove preferences for “pass-through” businesses like limited-liability companies and partnerships
For Some, the New Business Taxes Are a Bridge Too Far
Even some of the experts who could get behind the tax increases on wealthier individuals will rebel against any new business taxes, even on the largest corporations. The logic is that it’s the employees who will eventually feel the pain.
“Research shows that corporate tax increases are mostly passed on to workers in the form of fewer jobs and lower wages,” said Hogan, who previously served as the chief economist for the U.S. Senate Committee on Banking, Housing and Urban Affairs. “The proposed corporate tax rate of 28% would put the United States among the highest of developed nations, which would push businesses and jobs overseas.”
An independent analysis by the Tax Foundation seems to lend credence to Hogan’s point. The report concluded that the increased corporate tax rate will cost 159,000 full-time jobs and trigger a 0.7% wage reduction.
It’s Not Only Big Business in the Crosshairs
Even many of the policy experts who could tolerate tax hikes on wealthy individuals and corporations will draw the line at LLCs and partnerships. Those classifications include millions of small businesses, although many will not be affected by the tax hike.
“Raising taxes on partnerships and limited-liability companies would put many small businesses out of business,” Hogan said.
The stricter limits on offsets for LLCs and similar noncorporate businesses are only part of the worry. Entrepreneur points out that those provisions pile on with the phasing out of the qualified business income deduction, the new Social Security tax and the increased income tax. Together, they have the cumulative potential to crush successful small-business owners — and successful small-business owners create most of America’s jobs.
“Biden’s tax plan would reverse the economic boom we experienced prior to the coronavirus crisis, which created the lowest unemployment rates for minorities and low-skilled workers in U.S. history,” Hogan said.
More From GOBankingRates
- If You Get a Stimulus Check, How Will You Use It? Take Our Poll
- How Long $1 Million in Savings Will Last in Every State
- Navy Federal Platinum Credit Card Review: Great for Balance Transfers and More
- 27 Ugly Truths About Retirement