Wait - you’re calling an increase in tax due to increased income to be a tax hike?
I’ll bet doing absolutely nothing to the tax code would’ve resulted in 70% of families paying more taxes in 2027 anyways.
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I think you may have meant to reply to me about this. My understanding is that Medicare tax collection is only suspended for this year, and barring Congressional action, will be still due likely next year. Either way, I don’t see either party in a hurry to defund social security and similar retirement entitlements, so expect the status quo, with collections, to be the likely ongoing outcome.
No, you’re just pretending not to read or comprehend as usual. The tax foundation comparison is clearly before/after the tax changes.
If you want an alternative perspective on Biden’s economics and tax plan, here’s the WSJ. Unlike Moody’s, they’re not very optimistic on the Keynesian approach for the long term.
https://www.wsj.com/articles/the-cost-of-bidenomics-11603055037?mod=hp_opin_pos_3
The issue is whether Mr. Biden’s policies will nurture this strong recovery, or slow it down as Barack Obama’s policies did after the 2009 recession. This is where the Hoover study comes in, as it examines the Democrat’s proposals on health insurance, taxes, energy and regulation…
Mr. Hassett has done pioneering work on the impact of corporate taxation and Mr. Mulligan of the University of Chicago on the impact of government subsidies that raise the marginal tax-rate barriers as workers try to climb the economic ladder. The 50-page Hoover study is valuable because it examines policies for their incentive and supply-side effects, rather than merely macroeconomic demand-side spending.
Overall, the authors estimate that the Biden agenda, if fully implemented, would reduce full-time equivalent employment per person by about 3%, the capital stock per person by some 15%, and real GDP per capita by more than 8%. Compared to Congressional Budget Office estimates for these variables in 2030, this means there would be 4.9 million fewer working Americans, $2.6 trillion less in GDP, and $6,500 less in median household income.
It says the “tax increase” is from slowing the rate of inflation in the tax code. Which means that people’s income increases quicker than inflation adjustments increase the brackets, pushing people into a higher bracket than they otherwise would’ve been (or they out-earn deductions they were previously eligible for, etc). It only affects people when their income also goes up.
If I’m just not comprehending, what does “slow the rate of inflation in the tax code” mean, then?
It’s not even really suspended for most people. Because it’s only a temporary action unless Congress acts on it which is extremely unlikely IMO.
For payroll, it’s a logistical headache that serves no purpose whatsoever. If employees leave before the end of the year, you have to dock the uncollected tax from their final pay because you’d otherwise have no way to claw it back after they are gone. And for those who remain employed, from January to April, you’re going to have to collect twice the tax, potentially messing up the folks who are poor planners.
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Yes that is possible but that’s not the same as repealing the Trump tax cuts as advertised.
I agree. Kicking the can is easier and is what everybody has done year after year and a main reason we have such a yearly budget deficit. Tax revenues are currently simply too low to allow us to live within our budget and spend the way we do. Let alone spend more on expanded social programs.
But to get back to balanced budgets, you also cannot get the extra revenues just from taxing the rich. That’ll only get you so much extra revenues. Same with closing corporate taxation loopholes. But at some point, you’ll also have to broaden your tax base and you cannot in good faith do that while also promising that taxes won’t be raised on anyone earning below $400k.
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A partial repeal of the Trump tax cuts (TCJA, right?) is advertised. How is what I described not the same?
I agree, but who is talking about balancing the budget?
What if you change jobs? Or get promoted? It’s a cluster.
Why not? Just over 20 years ago we even had budget surpluses. If we’re so prosperous and successful lately, how come we cannot spend within our means?
Ultimately, what’s the exit strategy for this trend otherwise? Default like Greece and others like it? Extended period of high inflation to reduce our debt burden? The longer we continue the higher toll on the budget the servicing of this debt will become and thus the more difficult it’ll be to curb it.
If you get promoted, it would not matter much. Payroll will know how much they failed to collect in FICA taxes over the months they stopped collecting them. So whatever your pay is after January, they’ll deduct that amount split into however many pay periods you have until April.
If you change jobs, it’s the same as retiring or getting fired. The FICA taxes will all be deducted at once from your final paycheck. So it’s all possible to get it figured out, just totally not worth it for any company to bother with. Which is why the vast majority won’t implement it. There’s nothing in it for them because they’re not benefiting from the extra cash-flow and it’s just unnecessary accounting hassle.
I think you missed the point of my reply to your previous message. You claimed that one cannot in good faith promise to not raise taxes for anyone making less than $400K/yr. But only if they also promise to broaden the base and balance the budget. I haven’t heard that second promise from anyone lately, including Biden, therefore the first promise of not raising taxes can still be made in good faith.
I just think he will need to broaden the tax base because we’re already running huge deficits as it is and I don’t see how even keeping them at this level is vaguely sustainable.
But at the same time, he’s also promising a lot of social programs which have little ways to pay for themselves otherwise. Student debt relief, universal healthcare (or whatever form the ACA expansion takes), climate change investment plans, lower prescription drug costs - especially for seniors -, increasing social security benefits, increased child tax credits, etc … (basically things from the Biden-Sanders unity plan) are all highly costly. I have not seen a single credible analysis showing that those can be implemented without raising taxes on at least some folks earning less than $400k/yr.
We’re told that the extra tax revenues from taxing the 1% and corporations will pay for all that but in my opinion and all the data I’ve seen of how much revenues could actually be derived vs the costs of new programs, it’s a bit like the mirage of the Trump tax cuts paying for themselves in extra GDP growth. Those has not worked before, so I don’t see how we’re now supposed to believe it’ll work next time.
P.S.: I’m not saying I don’t support higher taxation if it’ll benefit the country as a whole but I’d prefer if Biden told it as it is rather than promising stuff that’s just not possible.
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Marginally related:
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Here’s a very good article covering the likely / proposed Biden tax plan.
My quick takes
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pretax 401k’s for high earners would be vastly worse, and somewhat worse for normal people who use them for tax planning / income reduction as well ( such as to keep AGI low enough for credit thresholds). This is because the proposal replaces the current non-taxability of such retirement contributions with a flat 26%(?) credit regardless of income. This gives more benefit to those in tax brackets lower than that, and less to those higher. However, it also has the consequence of making those previously pretax contributions 1) now fully taxable at the state level (since you don’t get a federal AGI deduction, just a credit), and 2) fully taxable when withdrawal as well, despite having only gotten a partial credit when made in a higher tax bracket. This is much worse than breakeven if you are in the same high bracket at contribution and withdrawal, making Roth’s much better.
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estate taxes gets a lot worse, due to both the reduction from roughly $12M per person to $6M for the estate exemption, and removal entirely of the step up in basis at death. This suggests giving away the extra $6M this year, which apparently the IRS has said they wouldn’t come after. Also, it would suggest giving away assets incrementally over your life to avoid a huge tax and liquidity hit when all your assets, including possibly illiquid things like family homes, private or family business stakes, and of course stocks’ appreciation over the long term, all come due at once.
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those in high tax brackets would see much higher capital gains taxes due to the elimination of the long term / qualified dividend rates and instead taxing these at the (also increased) top ordinary income brackets plus the Obamacare investment tax as well. This would suggest selling any appreciated long term liquid holdings this year to avoid a near doubling of the tax rate on those gains.
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tax deductions would be reduced in value for those in several of the higher tax brackets via capping their deduction benefit at 28% instead of being deducted at your marginal rate. This suggests accelerating deductions into this year, in addition to also accelerating income if possible into this year where the tax rates would also be more favorable (an odd combination)
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social security taxes on wages would be uncapped, so wages over $400k would continue to be taxed at 12% instead of that maximum stopping any further taxes. Hard to due much here other than delay income to the extent possible until a more friendly administration might be elected.
In short, those in the top brackets would face a roughly 1/5 hit to their current take home and marginal tax brackets of around half their income (before additional state taxes). 60% marginal combined rates would be common for high earners in high tax states, and edge cases could be closer to 70%.
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Should that 12% be 6.2%? The employer’s portion was never capped AFAIK.
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I’m not an expert on payroll taxes, but this discussion of the current and proposed payroll taxes says both sides currently stop at the $137k wage base for SS (although Medicare tax continues). Biden’s proposal is to resume the full 12.x% SS tax starting again at $400k, leaving no extra tax between $137k-400k.
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You don’t have to be an expert to kbow that the employer pays 6.2% and the employee pays 6.2%.
if the cap is removed, then the employee would have 6.2% of their entire wages fund OASDI. Not a bad move IMO considering the state of SS.
That wasn’t the question, I thought the cap did not apply to employers, only to employees. I could be wrong.
I’m actually not sure about that.
Do self employed people have a copy on only the employee half, or, all of it?
It would be the same for FICA.
Self-employed pay “self-employment tax”, which is both halves of SS+Medicare. I’m pretty sure when I added my SE income to my W-2 income, the self-employment tax was less when the combination exceeded the cap…