Aren’t you glad the election is over? We’re not here to get political. But we think it’s a pretty bipartisan opinion to state we’re glad the election is over. After such a tumultuous election season, it seemed that the news cycle kept demonstrating just how deep the divides run in this country. And so for that reason, we’re glad there’s some small amount of relief. For the most part. States will continue to certify their results, some legal battles will continue playing out, and a few close states may require recounts.
But despite these protracted post-election processes that may stretch into December, it seems the results of the elections are mostly set in place by now. It’s clear that Joe Biden will become the next President of the United States. So, why are we writing about this?
Well, because while we don’t like to get political, the implications of this election (and every election) have a real, tangible impact on your finances and your taxes. And our duty isn’t to weigh in on any candidates—it’s to help you navigate the tax landscape you find yourself in.
The truth of the matter is that Joe Biden and Donald Trump have some pretty wide differences in their tax policies, along with most other things! And as we approach Jan. 20 and beyond, we want you to have an idea for President-elect Joe Biden’s tax plans.
So first, we’ll go over everything we know about Joe Biden’s tax plans both for individuals and businesses. Then, we’ll dispel some rumors that have been floating about over the past few months. Finally, we’ll go over some additional considerations you should take into your own financial and tax planning.
Much like with any new administration, many questions need to be answered before we get a completely clear picture of exactly what a Biden presidency might look like for your taxes. However, we do have a sense of his plan, as it’s been discussed quite a bit during the campaign. Here’s what we know about Joe Biden’s tax plans.
For most people, taxes won’t go up under President-elect Joe Biden. And if you think they will, we get it!There’s been a lot of misinformation floating around on all sides about the policy plans of each candidate. But we’ll break down the facts so you know how his tax plan will affect your tax return.
In actuality, the Biden tax plan is pretty uneventful for a majority of taxpayers. According to the plan, if you earn less than $400,000, you wouldn’t see any increase on your taxes. (On the contrary, the Urban-Brookings Tax Policy Center states that middle-income households might see an average tax cut rather than a tax raise—of $680. For low-income households, taxes could fall by $760.)
Joe Biden’s tax plans would involve raising individual taxes on the top 10% of earners (over $400,000 annually). And the tax plan would reverse the 2017 tax cuts which benefitted high earners, effectively raising taxes.
Joe Biden’s tax plans take aim at US companies, which can generally expect to pay more in federal taxes. But there has been some misinformation floating around, so let’s spell out exactly what the corporate tax increase might look like.
Joe Biden pledged to roll back Trump’s corporate tax cuts early in his presidency. That could include raising the corporate tax rate from 21%, as was established during the Trump presidency, up to 28%. The figure still comes in lower than the tax rate pre-Trump—at 35%. So, businesses would have a higher tax rate, though it would at least be a recognizable one.
Biden would also look to impose a 15% minimum tax on income. Importantly, that figure wouldn’t compound on that higher tax rate. So companies won’t have to face a 43% tax rate!
In fact, that 15% minimum tax rate won’t really come into play for most businesses. It specifically takes aim at large corporations like Amazon, Google, and Facebook, which often manage to pay $0 in federal taxes, despite earning billions of dollars annually. That 15% minimum tax would work to ensure these companies still contribute their share of taxes.
Of course, the kicker is that plenty of tax loopholes will still allow companies to avoid paying their taxes. We’d need to wait and see whether Biden would be able to close those loopholes that large corporations typically take advantage of.
Whether you like Joe Biden’s tax plans as we’ve described them or not, we should caution you about getting too invested in them—for now. That’s because many of these plans require at least one of two separate actions. First, they would likely require Congress to pass a bill. Second, in other cases, they would require rollbacks of other legislation that would require Congressional support.
And some of these actions would have a slim chance of passing the Senate, which stands at a pretty precarious place for President-elect Biden.
For the past several years, the GOP has enjoyed a majority in the US Senate. That comes with advantages—having control over which bills make it to the floor, and also having a voting majority on those bills. This advantage, while a particular obstruction for President Obama’s policy agenda, has served as a boon for President Trump’s. And right now, control of the Senate hinges on two runoff races in Georgia. If Democrats win both, then there will be a 50-50 split in the Senate, which we could anticipate a Vice President-elect would often break in favor of the Democrats. Anything shy of 50-50, and the path to some of these tax changes becomes much narrower.
When an election approaches, folks have a tendency to act somewhat irrationally. We’re not judging, because it makes total sense. Voters spend increasing time listening to their preferred candidates, pundits, and party, which work very hard to depict “the other side” as putting forth fundamentally dangerous policies or planning some doomsday scenario for the country.
While it’s true that candidates do hold differing values and different policies, in reality, the changes we end up seeing typically are much more gradual and never so sinister. And from a tax perspective, we want to caution you about making any big financial decisions beyond your normal end-of-year planning.
You might benefit from proceeding with caution, sure! If you make more than $400,000 annually or own a business, you might have specific considerations to make and create a financial plan for. But if not, the reality of your tax situation is likely to remain relatively unchanged. And again, much of the proposed changes may ultimately get watered down or eliminated in a GOP-majority Congress.
So, while you’re weighing the implications of the next four years on your taxes, just proceed with caution. And get in touch with a tax team that can help you navigate any changes as they may come.
Whether you like it or not, politics can impact nearly every aspect of your life. And any large election holds the potential to radically transform certain policies that affect you. Taxes included.
We think it’s important to understand how certain tax plans may affect you in the short- and long-term. So we hope that you’ve found this primer valuable. While many may not feel any tax increases under Joe Biden’s tax plans, we think one thing is clear—some January runoff elections will need to take place before we can get a clearer picture.
So, let’s wait and see.
In the meantime, get in touch with any other questions about your taxes, tax situation, or tax debt. You should never “wait and see” about your tax debt. We’ll get the ball rolling today—just send us a message.
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