Though the results of any presidential election are unquestionably meaningful, this year, it seems as though the stakes are higher than ever. Whoever's elected president this November will be tasked with lifting the U.S. economy out of its current recession, addressing racial tensions, and curbing the spread of COVID-19.
Of course, both President Trump and Democratic nominee Joe Biden have made their stances clear on a number of key issues, and one such matter that voters can't help but ignore are taxes. President Trump notably overhauled the tax system in late 2017 with his Tax Cuts and Jobs Act, and now, Biden has some ideas of his own on how to alter the tax code. Here are three big changes he intends to make if elected president.
1. A higher marginal tax rate for the wealthy
Right now, our country's highest earners pay a top marginal tax rate of 37% on their highest dollars of earnings. Biden is proposing to raise that 37% rate to 39.6% for individuals with income of over $400,000.
Clearly, this change wouldn't affect the typical wage-earner. In fact, the bulk of Biden's changes don't apply to low or moderate earners. That said, Biden is also planning to raise taxes on corporations, and if those go through, those added costs might get passed on to individual consumers. As such, Biden's tax plan could still impact all Americans, even if indirectly.
2. More payroll taxes for higher earners
Currently, all workers pay a 12.4% payroll tax that's used to fund Social Security. But that tax only applies to workers' first $137,700 of earnings this year. Next year, that threshold is increasing to $142,800. Because of this wage cap, most workers pay Social Security on all of their income, while the wealthy might potentially avoid payroll taxes on the bulk of their earnings. To bridge that gap and help ensure the viability of Social Security for many years to come, Biden is proposing that the 12.4% payroll tax be reinstated once earnings exceed $400,000.
This doesn't mean that workers earning more than $400,000 will pay that extra 12.4% tax on all of their income. Rather, for 2021 purposes, income between $142,800 and $400,000 would be exempt from that tax. From there, workers would start to be liable for payroll taxes for earnings over $400,000.
3. A higher long-term capital gains tax rate for the ultra-wealthy
There's a reason investors are often advised to hold stocks for at least a year and a day before selling them at a profit: Doing so bumps those gains into the long-term category, resulting in a much more favorable tax rate on them.
Currently, long-term capital gains for top earners are taxed at 20%, whereas short-term capital gains are taxed the same as ordinary income. Biden's plan is to increase the tax rate for long-term capital gains to 39.6% -- the same top rate he's proposing for ordinary income -- for those with an income of over $1 million. Clearly, this proposal in particular really targets the ultra-wealthy, who are often criticized for not paying their fair share of taxes.
Will Biden's tax plans go through?
Clearly, Biden has some major tax changes in store. But even if he wins the upcoming election, that doesn't automatically mean those changes will happen. For that to occur, Democrats will need to maintain their majority in the House and also take control of the Senate. As such, none of these proposals are guaranteed to happen, but it's still important for voters to understand Biden's intentions on the tax front.