Written by Hina Champaneri
With the recent election, tax policies played a significant role when citizens decided whom they wanted to cast their vote for because they do not want to see their post-tax income notably decrease. President Trump has implemented tremendous tax cuts in the past four years, and they have largely favored the top earners in the country. In 2017, he passed the Tax Cuts and Jobs Act which was the largest tax change in the past thirty years. President-elect Biden’s main goal is to increase the income tax rate for the nation’s top earners. The unique aspect of this election is that voters have concerns that are separate from just what they believe will benefit their own lives. Both candidates’ polarized policies forced voters to choose between other factors as well, such as the environment and pandemic. When it comes to tax policies solely, the way it would affect people of different socioeconomic statuses differs from any ordinary year. People have lost jobs and are facing struggles that did not exist before a few months ago.
Biden’s tax plan emphasizes the necessity of increased taxes for those who are a part of the top earners in the country. Specifically, the cutoff that Biden has proposed is $400,000, and no tax increases for those below that mark (Rubin 2020). Therefore, most of the tax increase burden would be placed on the top 1%. The proposed rate is a 7.4% increase from 29.6% to 37%, which would increase government revenue by $4 trillion from 2021 to 2030 (Hube 2020). Biden does not intend to completely repeal the tax cuts that Trump implemented in 2017. However, he will change parts of it to make them more progressive. People in the middle class will not face any tax increases, and in fact, he plans to provide more tax credits. These include child tax credits, dependent credits, and first-time home-owner credits. Though some may argue that Biden’s tax plan will lower the GDP, the effects are minuscule at only a 0.16% decrease over a decade (Rubin 2020).
The tax plan that Trump has put into effect during his presidency that he would have continued, concentrates on decreasing taxes for corporations and the wealthy. These tax cuts, specifically the TCJA, will also increase the budget deficit over the years. Both the Joint Committee on Taxation and the Tax Foundation have come up with possible long-term effects. The Committee states that the deficit would increase by a trillion dollars over the next ten years and the Foundations think that it will increase by almost $450 billion in ten years (Amadeo 2020). Congress believed that the gains made by the cuts would offset the costs, but this would not be true in the long run according to economists (Amadeo 2020). Corporations currently are more concerned about what will happen under Biden’s tax plan because of his progressive tax policy. Trump’s 2017 tax cut is set to expire by 2025 and with a Democratic victory, the chances of it becoming permanent are far less likely (Rosenbaum 2020).
The effects of Biden’s tax plan primarily affects those in the top 20% of earners in the nation. His plan will negatively impact the top 1%, lowering their post-tax income (D’Souza 2020). On the other hand, had Trump won, the top 20% would have seen a 2.4% post-tax income increase (Hube 2020). As a result, this makes Trump’s tax plan regressive as it would have further exaggerated income gaps. Corporations had a high incentive to vote for Trump because they do not want to see the Tax Cuts and Job Act expire. The pandemic has changed the way that US citizens view the government, and it significantly impacted the course of this election. According to data from past elections, small business owners face a dilemma because they primarily skew to the right, regardless of their political opinions on other issues. Though business owners want conservative fiscal policies so that they can pay lower taxes, it is interesting to see how the current political climate affected their decision.
Most individuals will not see a significant difference in their taxes as a result of Biden’s win, but the long-term effects will change. The effects of higher corporate taxes and increasing the tax rate for the top income brackets will show in the long run because the government can use the extra revenue to provide more stimulus for the economy. The wealthy have not faced the financial challenges that lower- and middle-class families have faced because of COVID-19 and instead they have seen an increase in their incomes. This starkly contrasts with those who have lost their jobs and gone through their savings in the past few months. While most people will not face tax increases, they will positively experience the effects of having more government stimulus checks that come from taxing the top one percent.
References
D’Souza, Deborah. “Comparing the Economic Plans of Trump and Biden.” Investopedia, Investopedia, 23 Oct. 2020.
Rosenbaum, Eric. “How Trump and Biden Economic and Tax Plans Differ in Ways That Could Impact Main Street.” CNBC, CNBC, 21 Oct. 2020.
Rubin, Richard. “How Joe Biden’s Tax Plan Could Affect You.” The Wall Street Journal, Dow Jones & Company, 2 Nov. 2020.
Hube, Karen. “Biden Defeated Trump to Win the Election. Here’s How Much You Would Pay Under His Tax Plan.” Barron’s, Barrons, 8 Nov. 2020.
Amadeo, Kimberly. “What Are the Costs of the Trump Tax Cuts to You?” The Balance.