President Biden campaigned with a message to “Build Back Better”, and he’s wasted no time in proposing wide-sweeping policy measures. The American Families Plan, the American Jobs Plan, and the Made in America Tax Plan present significant investments in numerous national initiatives, offset with tax increases on corporations and high-income earners. Below is an overview…

Intended Tax Increases for the Wealthy

Provisions in the Tax Cuts and Jobs Act of 2017 will be reversed, and higher-income taxpayers should expect changes, including but not limited to:

• Individual tax rates for the top income bracket could increase from the current 37% to 39.6%.
• Presently, long-term gains are taxed at a maximum rate of 20%, but for those taxpayers earning more than $1 million in a tax year, it would increase to 39.6%. Additionally, the net investment income tax of 3.8% would likely still apply, so the top federal tax rate on capital gains would total 43.4%, almost double the current law top combined rate of 23.8%.
• The net investment income tax (NIIT) applies to investment income, but Biden’s plan intends to apply it to all types of income greater than $400,000. Combined with the hike in capital gains, some high-income taxpayers could see an overall capital gains tax rate that tops 50%.

Tax Relief for Individuals and Families

The American Families Plan (AFP) is designed to benefit lower-income individuals and families by increasing the tax liability of high-income earners. The following are a few ways it will accomplish this.

• Child Tax Credit (CDC). Under the Biden administration’s recent stimulus package, the American Rescue Plan Act (ARPA), the CTC was temporarily increased from $2,000 to $3,000 per eligible taxpayer for each child age six through 17, and $3,600 for children under age six. From approximately July 15 through December 2021, the U.S. Treasury Department will make monthly advance payments for the CTC. The credit is generally fully refundable. The AFP would continue these tax credits through 2025.
• Child and dependent care tax credit. This credit was expanded for 2021 through the ARPA. Taxpayers may claim a refundable 50% credit for up to $8,000 in care expenses for one child or dependent and up to $16,000 in expenses for two or more children or dependents. The AFP aims to make this credit permanent. Families who earn between $125,000 and $400,000 annually would be eligible for partial credit while the credit can be reduced below 20% for families with income greater than $400,000.
• Premium tax credit. The ARPA furthers the availability and amount of premium tax credits (PTCs) under the Affordable Care Act (ACA). It grants PTCs to anyone who receives, or was eligible for, unemployment benefits in 2021. It also restricts the amount that anyone who acquires insurance through the federal or state marketplaces must pay for premiums to 8.5% of the taxpayer’s modified adjusted gross income (MAGI). The AFP seeks to establish this expansion as permanent.

Corporate tax proposals

Biden plans to pay for the tax relief initiatives created to aid individuals and families with his Made in America Tax Plan. Here’s what that looks like.

• Corporate tax hike: Biden would increase the corporate income tax rate from 21% to 28%. Before the Trump tax cuts of 2017, the US had the highest corporate tax rate in the world—ranging from 29%-35%—and the Biden administration points out that 28% is still less than this.
• Global minimum tax: The Made in America Tax Plan would increase the minimum tax of US corporations to 21%. This is much higher than the 12.5% minimum rate recently discussed by the Organization for Economic Cooperation and Development (OECD), which is a longstanding multi-country organization that develops and promotes policies aimed at improving the economic and social well-being of people around the world. The Plan would also calculate the rate on a country-by-country basis to discourage companies from harboring profits in international tax havens.
• Tax on book income. The administration plans to impose a 15% minimum tax on book income—the income the largest corporations report to investors—rather than the income reported to the Internal Revenue Service (IRS).
• Corporate inversions. The Made in America Tax Plan would make it more difficult for US companies to acquire or merge with foreign businesses to sidestep paying US taxes by declaring to be a foreign company. The Biden administration also aims to embolden other countries to levy strong minimum taxes on corporations, including by refusing various deductions to foreign companies based in countries lacking such a tax.