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As elections quickly approach, the world seems more and more convinced that Trump is the one losing. Major polls show that Joe Biden is way ahead of Trump, and people are already speculating what is going to happen to the economy and the stock market once Biden starts implementing his tax plan. And it’s not something to look forward to.
How Biden is planning to change the tax code
Although Biden is considered a democrat, the tax plan doesn’t look like anything like that. The tax code is continually progressing, but he wants to take even further by increasing it faster, which will, most probably, influence the top 2 percent of taxpayers. This doesn’t have any right side to it, except it’s going to refrain people from investing, and won’t change wealth inequality. It could only damage the economy and discourage savings.
The focal point of the new tax plan
The main focus of Biden’s plan is the taxes on earnings used to fund Social Security. Currently, payroll taxes only work on the first $137,700 in income, subject to an annual cost of living. The employee and employer each have to pay 6.2% in Social Security tax. For example, self-employed individuals have to pay both sides or 12.4%. Biden suggested applying this tax to an unlimited income above $400,000. Also, Biden wants to raise the top marginal tax rate from 37% to 39.6% again.
The result
If in full effect, the Social Security tax would become a new, higher marginal rate. Critics say the payroll tax is regressive, but it’s intended to be that way. The tax’s original purpose was to fund each individual’s Social Security benefits, not support general government revenues. Making the Social Security tax progressive, and at the same time, increasing marginal rates to the 50% range for self-employed people, would mean paying both sides of the tax. That would be a huge discouragement to any form of entrepreneurship or investment of any kind, especially in the financial market.
Taxing Social Security
Taxing Social Security when they earn anything above $400,000 won’t hit the top 0.1%, but it will surely hit the top 2%. Another problem is there are members of the top 2% in every community in America. These are successful, usually small business owners, along with professionals such as attorneys. For example, we can assume they earn about $360,000 per year, compared with $2.8 million of the top 0.1%. That’s the big difference we are talking about. Also, about a fifth of Americans will earn $250,000 annually at least once in their lifetimes, which also puts them near the top 2%.
The inequality problem
If Biden wanted to target extreme inequality, it is logical to propose higher marginal rates for higher income levels, starting at least $5 million. This should exclude Medicare taxes and state income taxes, which would take marginal rates well above 60% and quickly become the highest in the world.
The current tax code makes it that wealthy people still pay less than everyone else. This also serves as a prompt for investment in any financial market. Biden’s tax plan does take that into account, raising taxes on long-term capital gains for revenues exceeding $1 million a year. With Biden’s plan, billionaires would still pay less than someone with a few shops that make $400,000 a year.
What would America get out of Biden’s plan
Over ten years, Biden’s policy will only collect about $3.2 trillion, which is nothing compared to the current $3 trillion federal budget deficit. If Biden was interested in boosting revenue and investments, it would have to raise taxes on the middle class, but that would be another big problem. If the candidate’s plan passes, our marginal income tax rates will become enormous, with a hypothetical couple paying 24% in taxes on incomes up to $320,000. The U.S. has done regular business formation rates, but that will not last very long if Biden becomes president, and his tax plan becomes law.
