The top sliver of U.S. households would see their tax bill increase by close to $160,000 each year under the spending proposals released this month by President Biden.
That’s according to a new analysis published this week by the Institute on Taxation and Economic Policy, which found that the wealthiest 1% of Americans would pay an extra $159,010 in taxes each year if Congress passes the Biden administration’s newest $1.8 trillion economic initiative.
By comparison, the top 4th percentile of households – or those that earn between $276,200 to $681,600 – would see a tax increase of just $2,960, according to the non-partisan think tank. Americans earning less than $276,200 would likely not see their taxes rise under Biden’s proposal.
Under the American Families Plan, released Wednesday, the top capital gains tax would climb to 39.6% from 20% for Americans earning more than $1 million, while the top individual income tax rate would increase to 39.6% from 37% for families with joint taxable income of about $509,300 and individuals earning more than $452,700. The measure would also eliminate the so-called stepped-up basis, which could substantially increase taxes at death for affluent Americans.
“We’re talking about a tax change that would affect the three-tenths of one percent, the top sliver of households,” Brian Deese, Biden’s top economic adviser, told reporters on Monday. “The principle here is to equalize the treatment of ordinary income and capital gain.”
In all, the changes proposed by the Biden administration would generate about $88.4 billion in new tax revenue, according to ITEP. Eliminating the low personal income tax rate for capital gains would raise $142.5 billion in revenue, while restoring the top income tax rate to 39.6% – where it sat before the 2017 tax overhaul – would raise $25.9 billion.
However, that would be offset by behavioral effects of higher taxes on capital gains, which would actually decrease revenue by about $79.9 billion, the analysis found.
That’s likely because rich Americans would employ techniques to avoid the capital gains tax rate increase; a separate analysis by the Penn Wharton Budget Model found that tax avoidance, most of it legal, would cut about $900 billion of the estimated $1 trillion that a capital gains tax increase could generate for the federal government over the next decade…Read more>>