- The proposed budget could decrease the nation’s deficit by $3 trillion within the next ten years if approved.
- The main focus of the debate is the areas of increased taxation to offset increases in budget expenses.
- It is unlikely this proposition will pass the Republican-led House of Representatives, but it does allow Biden to clearly mark his stance on the issues.
What is Biden’s Proposed Budget and Tax Plan?
President Biden has recently announced another budget and tax plan to the nation. His previous tax plan was met with mixed results, and he attempted to increase the tax revenue the government received. This time around, his goal is still the same. However, it is important to note that Biden has focused these tax increases towards the ultra-wealthy. The average American should not see a tax increase based on his suggested changes.
How Will the Plan Impact the Deficit?
Biden’s proposed budget would allow the nation to shave off about $3 trillion of the deficit over the next decade if it is approved. This is possible because the taxation proposals will generate more tax revenue than what will be spent on the budget expenses. The main area of increased expenses are roughly a 3% increase to defense spending and retirement programs such as Medicare and Social Security. Also, there will be a 6% increase to non-defense spending, which may include items such as child care and paid leave benefits, combatting climate change, and increasing U.S. microchip production.
What are the Key Areas of Increased Taxation?
The taxation structure to help afford these increases is what is causing some concerns, especially among the ultra-wealthy. One of the most potentially impactful pieces of the proposition is the increase in the top marginal income tax bracket. This would shift the highest tax rate from 37% up to 39.6%. This would result in a potential 2.6% of extra tax revenue earned on individuals making over $400,000 and on couples making over $450,000. Those earnings over $1,000,000 also have another concern however. The proposal also aims to treat capital gains as regular income, which would essentially remove the long-term capital gains tax rate for those making over $1 million.
Will the Republican-led House Approve the Plan?
The new tax plan is truly geared towards increasing taxes on the rich and also corporations. Those with over $100 million in assets, they may be required to pay a minimum of 20% income tax. Currently, it is estimated that these individuals only pay roughly an 8% tax due to the strategic tax plans they have in place. Corporations may see a 7% increase to their top tax rate as well as double the taxes due from foreign earnings.
What are the Implications for the Next Election?
These are just some of the changes that are outlined in the new budget and tax plans. However, we do not believe the Republican-led House of Representatives will allow these to go into effect. Republicans are typically more on the capitalist side of the aisle and do not favor increased taxes. It will be hard to gather the support needed to approve these propositions, so perhaps Biden is promoting these for another reason. It is possible that Biden and fellow Democrats want their stance to be known in preparation for the next election campaign. Only time will tell what actually gets approved and put into place and what kind of impact these plans may have on the next presidential election.
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We hope you learned something today. If you have any feedback or suggestions, we would love to hear them.
Zachary A. Bachner, CFP®
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