Presidential candidate Joe Biden has announced that, if elected, his goal will be to make major changes to tax rules, mostly by raising taxes on the wealthy as well as on corporations. In fact, the Penn Wharton model, prepared by the University of Pennsylvania, indicates that Mr. Biden's plans would raise $3.375 trillion in additional tax revenue from 2021 to 2030. 

The bulk of the additional tax burden would be felt by the top 1%, Penn Wharton has found, with the richest Americans providing around 80% of the additional revenue collected. But because Biden would raise taxes on corporations, consumers would find some extra money coming out of their pockets. This would likely occur because when businesses face tax increases, they pass them on to individuals. 

Because of this, the Penn Wharton model shows that effective tax rates would be slightly higher under the Biden plan than under current law. Here's how the changes would affect you. 

Man sitting at computer with tax form.

Image source: Getty Images.

Your effective tax rate under the Biden plan

The table below shows what the effective tax rate would be for Americans at different income levels, relative to what they are currently paying, if Biden's tax plan took effect. An effective tax rate is an average of all the tax rates paid on various income sources. The table also separates out the different tax rates for some of the highest-earning Americans who would be asked to pay the most under Biden's plan. 

It takes into account your income tax, payroll taxes collected to fund Social Security, and the distribution of corporate income tax at the household level, under the assumption that 75% of the added tax will apply to returns on capital and the remainder on wages. 

Income Group Effective Tax Rate in 2021 Under Current Law Effective Tax Rate in 2021 under the Biden Plan
Bottom quintile 1.1% 1.6%
Second quintile 9.1% 9.4%
Middle quintile 16.9% 17.3%
Fourth quintile 19.4% 19.8%
80% to 90%  22.8% 23.2%
90% to 95% 24.5% 25.1%
95% to 99% 26.5% 27.6%
99% to 99.9% 30.7% 37.4%
Top 0.1% 30.6% 43%

Table source: Penn Wharton. 

Biden plans to use the additional revenue collected to invest in infrastructure and development, to expand healthcare options, and to shore up Social Security's funding, among other things. For some Americans, especially those in the lower quintiles, a slightly higher effective tax rate may be offset by savings elsewhere if, for example, Biden is able to build on the Affordable Care Act and reduce health expenditures. 

And because tax and spending policies cannot be altered without action from Congress, lawmakers would need to act in order to make the proposed changes to the tax code that would result in this adjustment of effective tax rates.

Still, with both Biden and President Trump pledging to make various changes to the tax code if elected, it is important to understand each candidate's position and make a fully informed choice on Election Day. You can find out more details about tax changes Trump wants to make as well as tax changes Biden has proposed to help guide your vote -- and develop a post-election plan for your investments and your retirement