Now that the presumptive Democratic presidential ticket will be former Vice President Joe Biden and California Senator Kamala Harris, many will remember the two squaring off in the primary run-up on such issues as healthcare, taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es, and criminal justice reform. What tax policy ideas did Harris propose along the campaign trail, and how do they differ from Biden’s plan?
Harris has proposed multiple changes to the tax code, including:
- Raising the top marginal income tax rate on the top 1 percent (up to 39.6 percent from 37 percent)
- Implementing a 4 percent “income-based premium” on households making more than $100,000 annually to pay for her version of “Medicare for All”
- Creating a new refundable tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. (the LIFT Act) that would be available to low- and middle-income taxpayers, designed to increase after-tax incomeAfter-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize after-tax income. to address the rising cost of living
- Raising capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. Capital gains taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. rates at the same rates as ordinary income, though it is unclear if Harris would do so only on a subset of taxpayers.
- Raising the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate of 21 percent, established in the Tax Cuts and Jobs Act (TCJA)The Tax Cuts and Jobs Act in 2017 overhauled the federal tax code by reforming individual and business taxes. It was pro-growth reform, significantly lowering marginal tax rates and cost of capital. We estimated it reduced federal revenue by .47 trillion over 10 years before accounting for economic growth. , up to 35 percent
- Expanding the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. to cover increased teacher compensation
- Imposing a financial transaction tax (FTT) on stock trades at 0.2 percent, bond trades at 0.1 percent, and derivative transactions at 0.002 percent
Many of the details of Harris’ plans lacked specifics. However, there are a few shared policy ideas between the Biden and Harris plans. Among them, both candidates included:
- Raising the top income tax rate on the top 1 percent of earners from 37 percent to 39.6 percent
- Increasing the corporate income tax rate
- Taxing capital gains and dividends at ordinary income tax rates
- Increasing refundable tax creditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit. s for individuals
- Harris has suggested the need for a carbon fee. Biden also responded to the idea favorably in an interview with CNN’s Anderson Cooper.
There are also notable differences between each candidate’s proposals:
- Biden’s plan would increase the corporate income tax rate to 28 percent vs. 35 percent under Harris.
- Biden would only apply ordinary income tax rates to capital gains on those filers with incomes over $1 million annually. It is not clear if Harris proposed applying ordinary income rates to all capital gains regardless of taxpayer income.
- Biden has proposed eliminating the income cap on Social Security taxes and doubling the Global Intangible Low-Tax Income (GILTI) taxes. More information is needed on Harris’ stance.
- Unlike the Harris plan, Biden’s campaign does not include an income premium to pay for any version of a “Medicare for All” program. In fact, the Biden campaign criticized Harris during the primaries over the issue, arguing that the Harris plan represented “a refusal to be straight with the American middle class” and would result in tax hikes for millions of families.
- Harris has proposed a new refundable tax credit for low- and middle-income earners. Biden’s plan mostly expands current credits already enacted (e.g., Earned Income Tax Credit, New Markets Tax Credit, Renewable Energy Credits, etc.) in addition to offering new credits, primarily on the business side (e.g., a manufacturing communities tax credit and small business workforce savings plan credits).
- Harris has proposed a financial transaction tax (FTT)A financial transaction tax (FTT) is levied on each unique instance of the buying and selling of financial assets such as stocks, bonds, or derivatives. Under a financial transaction tax, a percentage of the asset’s value is paid in taxes when it is traded. FTTs usually apply only to select financial instruments and often have varying tax rates depending on the asset type. on certain Wall-Street trades, including stocks, bonds, and derivatives. Biden has remained silent on whether he supports a tax on transactions.
Overall, both candidates support increasing taxes for corporations and higher-income-earning individuals. Additionally, both candidates endorse taxing investment income (e.g., capital gains and dividends) at ordinary income rates for certain filers and increasing the value of refundable credits for individuals and businesses that face increased marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. burdens.
As the election season enters the final stretch, we expect the Biden-Harris campaign to provide more details about how their Administration would encourage lawmakers to change the tax code.Share