Erica York is Senior Economist and Research Manager with Tax Foundation’s Center for Federal Tax Policy. She previously worked as an auditor at a large community bank in Kansas and interned at Tax Foundation’s Center for State Tax Policy.
Her analysis has been featured in The Wall Street Journal, The Washington Post, Politico, and other national and international media outlets. She holds a master’s degree in Economics from Wichita State University and an undergraduate degree in Business Administration and Economics from Sterling (KS) College, where she is currently an adjunct professor. Erica lives in Kansas with her husband and their two children.
The Biden administration is proposing to tax long-term capital gains at ordinary income rates for high earners, which will bring the top federal rate to highs not seen since the 1920s.
The top federal rate on capital gains would be 43.4 percent under Biden’s tax plan (when including the net investment income tax). Rates would be even higher in many U.S. states due to state and local capital gains taxes, leading to a combined average rate of over 48 percent compared to about 29 percent under current law.
President Biden’s choice to fund new spending programs with increased corporate taxes comes with trade-offs for American output and incomes.
The Options guide presents the economic effects we estimate would occur in the long term, or 20 to 30 years from now, but we can also use our model to show the cumulative effects of the policy change—providing more context, for instance, about how the effects of a higher corporate income tax rate compound over time, which we estimate would reduce GDP by a cumulative $720 billion over the next 10 years.
An increase in the federal corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to 32.34 percent, higher than every country in the OECD, the G7, and all our major trade partners and competitors including China.
In an effort to rein in perceived excesses in executive compensation, Sen. Bernie Sanders (I-VT) and other co-sponsors have proposed to increase a company’s corporate income tax rate progressively based on the difference between median worker pay and CEO pay.
Since 1987, unemployment compensation benefits have been subject to federal income tax and, in most states, to state income tax. According to the Congressional Research Service, such treatment—including unemployment compensation benefits in taxable income—is common across industrial nations.
As the Biden administration and Congress consider making the expanded child tax credit permanent, a nearly $1.6 trillion expansion of tax code-administered benefits, they should consider financing it in a way that doesn’t create significant headwinds to economic recovery.
New Yorkers faced the highest burden, with 14.1 percent of income in the state going to state and local taxes. Connecticut (12.8 percent) and Hawaii (12.7 percent) followed.
As lawmakers evaluate how to respond to the global semiconductor shortage, they should consider allowing full cost recovery across all types of capital investment—inventories, machinery and equipment, structures, and R&D.
The major tax-related benefits in the $1.9 trillion economic relief plan are a third round of direct payments, extended unemployment insurance (UI) benefits and a $10,200 unemployment insurance income exemption for 2020, and an expansion of the Child Tax Credit.
The international experience with wealth taxes should serve as a warning to the U.S. A wealth tax would reduce the size of the economy, shrink national income, and significantly distort international capital flows.
The coronavirus relief legislation passed out of the House Ways and Means Committee would significantly expand the child tax credit for 2021, from its current $2,000 maximum to a fully refundable $3,600 for children 6 and under and $3,000 for children over 6.
The House Ways and Means Committee measures would further extend the relief measures created by the CARES Act and the Consolidated Appropriations Act of 2021, and would go further by significantly expanding existing tax credits and making changes to the international tax system.
House Ways and Means Democrats recently released a proposal to expand the child tax credit for one year as part of President Biden’s larger $1.9 trillion economic relief package.
Sen. Mitt Romney (R-UT) recently proposed the Family Security Act, which features a new, more generous child allowance for families with children while reforming other sources of aid for low-income individuals.
The latest IRS data shows that the U.S. federal individual income tax continued to be progressive, borne primarily by the highest income earners.
President Biden is calling for a third round of economic impact payments to households as part of his $1.9 trillion American Rescue Plan. Under the plan, the payments would be $1,400 per person, topping off the recent round of $600 payments for a combined $2,000 per person. Senate Republicans have proposed payment amounts of $1,000 per individual and $500 per dependent, lower income thresholds, and faster phaseout rates.
Newly published data from the Internal Revenue Service (IRS) shows that the first round of economic impact payments primarily benefited households earning less than $100,000.
President Biden’s plan builds on previous relief packages and would include larger payments to individuals, expanded relief for households and small businesses, funding for vaccine distribution, and aid to state and local governments.