Only the ‘lucky few’ will pay higher taxes under Biden’s plan, analysis finds
President Joe Biden plans to generate revenue to fund his infrastructure plans through numerous tax increases that would hit the top 0.7% of Americans most of all, according to a new analysis.
"The vast majority of the population will not see any tax increases," Steve Wamhoff, director of federal tax policy at the Institute of Taxes and Economic Policy and co-author of the report, told Yahoo Money. "This plan would really only ask people who have been very, very successful and have done very well in recessions and pandemics. Ask the lucky few to pay more."
These Americans would increase their tax burden by an average of $ 159,000 in 2022 as Biden came up with key proposals to increase the capital gains rate and increase the highest income tax rate, according to ITEP's analysis. In contrast, the bottom 95% of taxpayers would see no change in their tax burden in 2022 if the proposals were implemented.
A higher percentage of residents in New Jersey, Massachusetts, New York, California, and Connecticut would bear the tax burden, with just over 1% of each state's population potentially seeing a tax increase if Biden's plans go into effect.
Residents in states like Arkansas, Louisiana, Mississippi, New Mexico, Oklahoma, South Carolina, and West Virginia are the least likely to see a tax hike, according to Biden's proposals. Only 0.3% or fewer people in these states are facing a possible tax hike in 2022, according to the analysis.
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"Even if you look at the states where there are more rich people, even then a very small part of the population is affected by these tax increases," said Wamhoff.
According to Biden's plan, top earners would pay higher taxes on their income. The proposal restores the highest individual income tax rate to 39.6% for taxable income over $ 400,000. That rate is currently 37%, set by the Tax Cut and Jobs Act of 2017 under the Trump administration.
United States President Joe Biden speaks about America's employment plan after touring Tidewater Community College in Norfolk, Virginia on May 3, 2021. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN / AFP via Getty Images)
Additionally, the tax rate on long-term capital gains and qualifying dividends would increase from 23.8% to 39.6%, with an effective rate of 43.4% when the Medicare surcharge is added. The increased rate would apply to those who earn more than $ 1 million. Investors currently pay 23.8% as the highest capital gain rate, along with the Medicare surcharge, net capital gains tax of 3.8%.
The rate of capital gains would also vary from state to state, as some states have their own state or local capital gains taxes. For example, California, New York, Minnesota, and Oregon would have the highest peak equity return rates of 56.7%, 54.3%, 53.3% and 53.3%, respectively. According to an analysis by the Tax Foundation, a right-wing think tank, the average tax rate on capital gains in the US would be 48%, compared to 29% under current law.
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova
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