Biden's tax proposal could raise rates on middle-class Americans, violating campaign pledge
Biden's pledged tax proposals could indirectly fall on middle-class Americans
Sources tell FOX Business’ Charlie Gasparino that Joe Biden met with Wall Street executives last week and says he won’t back away from raising taxes.
Joe Biden has pledged to not raise taxes on any American who earns less than $400,000, but a new analysis published this week found that the Democratic presidential nominee's tax increase proposals could indirectly fall on the middle class.
"If we look at both the legal incidence of the Biden-Harris policy proposals and their economic incidence, we find both direct and indirect tax increases on many taxpayers who earn less than $400,000," wrote Taylor LaJoie, a policy analyst at the Tax Foundation.
The former vice president has unveiled a multitrillion-dollar agenda that would be funded in large part by higher taxes on wealthy U.S. households – which he describes as anyone earning more than $400,000 annually – and corporations. That includes higher income tax rates, an expansion of the payroll tax for Social Security, new tax credits and fewer deductions.
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“I will raise taxes for anybody making over $400,000,” Biden said during an interview with ABC's David Muir in August. “Let me tell you why I'm going to do it. It’s about time they start paying a fair share of the economic responsibility we have. The very wealthy should pay a fair share – corporations should pay a fair share.”
Biden has promised to roll back other changes made by Trump in the 2017 Tax Cuts and Jobs Act, including restoring the top individual income tax bracket to 39.6% from 37% for those earning more than $400,000 annually.
"When Biden says he will raise taxes on only those earning over $400,000, he is saying his tax law will target only those high-income taxpayers," LaJoie wrote. "Economists, however, trace the economic impact of these taxes past the person writing the check."
For instance, hiking taxes on corporations tends to adversely hurt workers in the form of lower wages, according to the Tax Foundation, a center-right think tank based in Washington.
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One study published by the American Enterprise Institute, a conservative think tank, found that a 1% increase in the corporate tax rate is correlated with a 0.5% decline in real wages. And in 2007, the nonpartisan Congressional Budget Office determined that workers pay more than 70% of the cost of corporate taxes.
The corporate tax rate is currently at 21%; Biden has vowed to increase it to 28%, which is still below the 35% where it sat for years before President Trump took office.
Some of Biden's proposals could more directly hit the middle class, including one frequently overlooked part of his platform that would upend the traditional tax preferences of retirement accounts like 401(k) plans.
Biden has said he would convert the current deductibility of traditional retirement contributions into matching refundable credits for 401(k)s, IRAs and others, a proposal that's intended to level the playing field of tax deferral min traditional retirement accounts, with the intent of boosting saving among low-income earners.
Under current law, workers contribute pre-tax dollars to the accounts, reducing their annual taxable income. (When the funds are eventually withdrawn in retirement, then the money is taxed.) But the system tends to disproportionately benefit wealthier earners since deductions are more valuable the higher one's income bracket is.
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For instance, a taxpayer in the top income bracket would receive a $37 benefit for every $100 contributed to a retirement account. By comparison, a taxpayer in the bottom bracket would get just a $10 benefit in exchange for the same $100 contribution. Biden has promised to eliminate such deductions and replace them with flat tax credits for each dollar saved (his campaign has not said what the flat tax will be yet).
But detractors of the proposal have noted it would reduce the tax benefit of traditional retirement accounts for married couples earning above $80,250 and earning under $400,000 -- violating the former vice president's pledge to not hike taxes on earners below the $400,000 threshold.
"This increases federal tax on any married couple earning more than $80,000," Paul Swanson, the vice president and head of intermediary distribution at CUNA Mutual Retirement Solutions, told FOX Business.
Individuals earning more than $400,000 represent about 1.8% of the country's population, according to the Penn Wharton Budget Model. The majority of Americans could expect to see taxes reduced under a Biden presidency, according to a separate study published by the Tax Foundation.
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