Presidential candidates tend to focus on issues that are near and dear to us, from shoring up Social Security to stamping out the coronavirus.
But perhaps none is as near and dear to our pocketbooks as the topic of income taxes.
To help you better understand the stance of the challenger, former Vice President Joe Biden, we dissected his individual income tax-related proposals as detailed in his official platform.
We did the same for the incumbent, President Donald Trump, although he gives voters less information to work with in terms of a formal platform.
Note that this article will detail income tax-related proposals. To learn how both candidates plan to change payroll taxes, see “5 Ways Joe Biden Wants Social Security to Change.”
1. Higher top income tax rate
Biden’s plan: “Raising the top individual income rate back to 39.6 percent.”
The Tax Cuts and Jobs Act of 2017 lowered the top individual income tax rate from 39.6% to 37%. So, Biden’s proposal — described as part of a broader effort to “ask wealthy Americans and big corporations to pay their fair share” — effectively would reinstate the prior top tax rate.
As of 2020, the top individual tax rate applies to people whose taxable income is more than:
- $311,025 if their tax filing status is married filing separately
- $518,400 if their status is single (unmarried) or head of household
- $622,050 if their status is married filing jointly or surviving spouse
2. Higher capital gains tax rate for ‘the super wealthy’
Biden’s plan: “Asking those making more than $1 million to pay the same rate on investment income that they do on their wages.”
Biden’s health care platform explains this proposal further:
“The Biden Plan will make health care a right by getting rid of capital gains tax loopholes for the super wealthy. Today, the very wealthy pay a tax rate of just 20% on long-term capital gains. … Biden’s capital gains reform will close the loopholes that allow the super wealthy to avoid taxes on capital gains altogether. The Biden plan will assure those making over $1 million will pay the top rate on capital gains, doubling the capital gains tax rate on the super wealthy.”
Capital gains are earnings from the sale of capital assets, such as stocks and bonds. Net capital gains are taxed at different rates than ordinary income like wages. Currently, 20% is generally the highest tax rate for net capital gains.
3. Expanded tax credits for ACA health insurance
Biden’s plan: “Increasing the value of tax credits to lower premiums and extend coverage to more working Americans.”
Biden’s platform states that he “will ensure that no family spends more than 8.5% of their income on health insurance by expanding access to refundable health premium tax credits.” This includes:
- A premium tax credit for “middle-class families” who buy health insurance through an Affordable Care Act (ACA) exchange. Biden’s campaign site gives an example with a family of four and an income of $110,000 per year: That family would save “an estimated $750 per month” on insurance under Biden’s health care platform.
- Calculating premium tax credits differently “to help more families afford better coverage with lower deductibles.” These credits would be calculated based on the price of a “gold” ACA health insurance plan rather than a plan in the “silver” category.
How would a Biden administration make up for the loss of federal revenue that would result from expanding premium tax credits? That is not entirely clear: His health care platform suggests that he expects the first two tax hikes mentioned in this article would cover it, but his campaign did not respond to requests for answers to that question and other questions about his income tax plans.
4. Expanded Child Tax Credit
Biden’s plan: “Expand the Child Tax Credit to help families through the crisis.”
Biden’s platform calls for increasing the value of the existing child tax credit, which is currently worth a maximum of $2,000 per child.
“Specifically, Biden will increase the CTC to $3,000 per child for children ages 6 to 17 and $3,600 for children under 6,” his campaign site states.
Biden also would make the credit fully refundable and enable families to receive it in the form of “monthly payments if they choose.” Currently, the credit is partially refundable, and taxpayers who qualify for it receive the credit when they pay their federal income taxes.
It’s unclear how a Biden administration would make up for the loss of federal revenue that would result from expanding this credit, too. His platform does not explicitly explain, and his campaign did not respond to inquiries.
5. New tax credits for housing
Biden’s plan: “Provide financial assistance to help hard-working Americans buy or rent quality housing.”
This housing platform includes the creation of:
- “… a new refundable, advanceable tax credit of up to $15,000” for first-time homebuyers. As Biden’s campaign site describes it: “… this tax credit will be permanent and advanceable, meaning that homebuyers receive the tax credit when they make the purchase instead of waiting to receive the assistance when they file taxes the following year.”
- “… a new renter’s tax credit to help more low-income families.” As Biden’s site explains it, this credit is “designed to reduce rent and utilities to 30% of income for low-income individuals and families who may make too much money to qualify for a Section 8 voucher but still struggle to pay their rent. He will allocate $5 billion in federal funding for the tax credit every year.”
Biden would cover the cost of these tax credits “by making sure corporations pay their fair share,” according to his housing platform — which includes many more measures than these two tax credits. The platform continues:
“Biden’s $640 billion investment in America’s housing is paid for by raising taxes on corporations and large financial institutions. Specifically, approximately $300 billion of the housing plan is devoted to new construction and is encompassed in the $1.3 trillion infrastructure plan. The remaining portion is paid for by instituting a financial fee on certain liabilities of firms with over $50 billion in assets.”
6. Restored ‘green’ tax credits
Biden’s plan: Reinstate multiple green tax credits
Biden’s infrastructure platform states that as part of efforts to “speed the transition to low- and no-carbon vehicles” and “make our buildings more energy-efficient,” he would:
- “… restore the full electric-vehicle tax credit …”
- “… reinstate tax credits for residential energy efficiency.”
- “… reinstate the solar Investment Tax Credit (ITC), slated to expire in two years …”
As for how Biden would pay for these tax cuts and his many other infrastructure initiatives, his campaign site explains:
“Every cent of Joe Biden’s $1.3 trillion investment in our nation’s infrastructure will be paid for by making sure the super-wealthy and corporations pay their fair share. Specifically, this investment will be offset by revenue raised through reversing the excesses of the Trump tax cuts for corporations; reducing incentives for tax havens, evasion, and outsourcing; ensuring corporations pay their fair share; closing other loopholes in our tax code that reward wealth, not work; and ending subsidies for fossil fuels.”
7. Expanded child care tax credit
Biden’s plan: “Offer low-income and middle-class families an up to $8,000 tax credit to help pay for child care.”
As Biden’s campaign site explains this tax credit:
“Families will get back as a tax credit as much as half of their spending on child care for children under age 13, up to a total of $8,000 for one child or $16,000 for two or more children. The tax credit will be refundable, meaning that families who don’t owe a lot in taxes will still benefit, and Biden will actively work with child care experts to explore ways to make it advanced, so cash-strapped families can immediately benefit from the credit. The full 50% reimbursement will be available to families making less than $125,000 a year. And, all families making between $125,000 and $400,000 will receive a partial credit ensuring that in no case will they get less under the Biden plan than they are eligible for today.”
This proposal is more generous than the current child and dependent care credit, which is worth a maximum of $3,000 for a household with one qualifying dependent and $6,000 for a household with two or more qualifying dependents.
Biden’s platform states that he would cover the cost of this expanded tax credit and related measures “by rolling back unproductive and unequal tax breaks for real estate investors with incomes over $400,000 and taking steps to increase tax compliance for high-income earners.”
What about Trump’s tax plans?
President Donald Trump’s official agenda for his second term does not appear to contain any mention of proposals that would directly affect individual income taxes, and his campaign did not respond to a request for more information about any such proposals Trump might have.
As Trump is the incumbent candidate, though, you can judge him by his first term.
Perhaps most notably, Trump lobbied for the overhaul of the federal tax code that Congress delivered on — the Tax Cuts and Jobs Act of 2017. You should only have to look as far as your past few federal income tax returns to determine whether that change left your finances better or worse off.
Earlier this year, Trump signed the Coronavirus Aid, Relief, and Economic Security Act into law. The CARES Act contained multiple income tax-related provisions designed to help Americans weather the current recession, from waivers for required minimum distributions and early retirement account withdrawals to a small tax deduction intended to encourage monetary donations to charities.
Of course, as with the Tax Cuts and Jobs Act, Trump’s role in the CARES Act was limited to supporting and signing the legislation. Congress, as the legislative branch of the federal government, does the heavy lifting on all federal lawmaking.
That goes for income taxes, too: The federal income tax system as we know it is dictated by the federal tax code — i.e., federal law. In other words, no president has the power to change income taxes unless Congress is willing to pass laws to that effect.
So, don’t let Trump’s or Biden’s individual income tax proposals preoccupy you to such an extent that you forget to research where your candidates for the U.S. Senate and U.S. House of Representatives stand on the topic.