Biden Tax Plan: Key Individual Tax Proposals

As part of his campaign for President, Joseph R. Biden, Jr. has developed a series of tax proposals, many of which apply to taxpayers with incomes of more than $400,000.

The following campaign proposals were taken from information in three publications posted on the Biden campaign website: “A Tale of Two Tax Policies”, “The Biden Plan for Mobilizing American Talent and Heart to Create a 21^st Century Caregiving and Education Workforce,” and “The Biden Plan to Protect & Build on the Affordable Care Act.”

Top Marginal Income Tax Rate

The top marginal income tax rate on ordinary income would rise from 37 to 39.6 percent for taxpayers making more than $400,000, reversing a tax cut made as part of the 2017 Tax Cut and Jobs Act (TCJA).

Itemized Deductions

A 28 percent cap would be imposed on the value of itemized deductions. The Pease limitation for taxpayers with income of more than $400,000 would be reinstated. The Pease limitation, which the TCJA suspended through 2025, reduced itemized deductions by 3 percent of adjusted gross income above a certain threshold. The TCJA’s $10,000 deduction cap for state and local taxes would also be repealed.

Qualified Business Income Deduction

The IRC Section 199A deduction (aka the qualified business income deduction) would be phased out for taxpayers with incomes of more than $400,000. The TCJA created this deduction to provide individuals, estates, and trusts with a deduction of up to 20 percent of their qualified business income.

New Social Security Tax Wage Base

A new Social Security tax wage base would be created for taxpayers with incomes of more than $400,000. Under current law, the Social Security tax wage base (to which the 12.4 percent Social Security tax applies) is $137,700 for 2020. An additional wage base would be created for taxpayers with income of more than $400,000. In other words, a “donut hole” would be created in the Social Security tax wage base between $137,700 and $400,000. Over time, that donut hole would close as the current wage base continues to increase with inflation while the $400,000 threshold remains static.

Tax Rate on Capital Gains and Dividend Income

Long-term capital gains and qualified dividends would be taxed at the same rate as ordinary income for taxpayers with income of more than $1 million. This would increase the top tax rate on long-term capital gains and qualified dividends from the current maximum rate of 20 percent to 39.6 percent. If the 3.8 percent Net Investment Income Tax also applies, the maximum tax rate on capital gains and dividend income would equal 43.4 percent.

Basis Adjustment at Death

The rule that adjusts the tax basis of many assets to their fair market value upon the death of the owner of those assets would be eliminated. As a result, unrealized capital gain inherent in such assets would be subject to tax when sold by the person that inherited the assets.

Real Estate Investments

Like-kind exchanges under IRC Section 1031 would be eliminated for taxpayers with incomes of more than $400,000. The exemption from the passive loss rules for certain rental real estate losses as well as accelerated depreciation for certain real property could also be eliminated.

Child and Dependent Care Credit

The child and dependent care credit would be expanded by increasing the maximum allowable expenses to $8,000 ($16,000 for multiple dependents), increasing the reimbursement percentage from 35 percent to 50 percent, and making the credit refundable for those with no tax liability.

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