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Trump and Biden Tax Policies

Posted on Tuesday, September 29, 2020
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by Outside Contributor
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taxPenn-Wharton’s budget team has produced new estimates of the effects of Joe Biden’s fiscal proposals. This post looks at PW’s tax distribution estimates.

PW presents estimated effective tax rates by income group, including individual income taxes, corporate income taxes, and payroll taxes. The estimates assume that corporate taxes land partly on capital income and partly on labor income. Effective tax rates are taxes paid by an income group divided by the group’s income.

Joe Biden’s campaign site says, “President Trump spent the remainder of his first year in office fighting for a $1.5 trillion tax giveaway primarily for large corporations and the wealthy … But middle‐​class Americans were largely left out.” This refers to the Tax Cuts and Jobs Act (TCJA) signed into law by Trump in 2017.

In my view, the PW estimates show that this Biden claim is not correct. The table below shows the PW estimates of effective tax rates in 2021 with and without the TCJA. I added a column showing the percentage tax cut for each group. For the bottom group, for example, the law cut the tax rate from 2.5 percent to 1.1 percent, which is a 56 percent tax cut.

The TCJA provided the largest percentage tax cuts to the bottom two quintiles—that is, the bottom 40 percent of U.S. households. All other groups received roughly similar percentage cuts ranging from 8 to 13 percent. It is not true that middle‐ or lower‐​income groups were “largely left out” of the Trump tax cuts.

Biden talks a lot about fairness in tax policy. His campaign site says, “As President, Biden will require corporations and the wealthiest Americans to finally pay their fair share.” At the Democratic convention, Biden said “it’s long past time the wealthiest people and the biggest corporations in this country paid their fair share.” Leftist politicians never say what that fair share is exactly. Fairness seems to be whatever the wealthy are paying now plus a lot more.

The chart below shows the PW estimates of effective tax rates in 2021 under current law and the Biden plan. Fairness is an opinion, but it seems far left to not perceive today’s highly slanted tax distribution as insufficiently progressive. Under current law, households at the top pay an 81 percent higher tax rate than households in the middle quintile. They pay three times the rate as those in the second quintile and more than 20 times the rate as those in the bottom quintile.

Households at the bottom pay virtually nothing, while households at the top pay almost a third of their incomes in federal taxes, on average. The New York Times reports that Donald Trump pays little in income taxes. If true, Trump’s taxes are a rare exception to the heavy burden that most high earners face, as reflected in the overall statistics.

What is tax fairness? My starting point would be the simplest possible system with a single rate and equal treatment of individuals and industries. The simpler the system, the easier it would be for the IRS to collect taxes on high earners such as Trump. Unfortunately, both parties in Congress have conspired to impose a tax system of ghastly complexity, which has made it easier for some high earners to slip through the cracks.

Note: in its appendix, PW presents estimates of the Biden plan including proposed changes to tax credits, which makes the Biden plan’s distribution even more progressive than shown here.

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PaulE
PaulE
3 years ago

The PW team used two assumptions that I can see:

1) That everything Biden and the Democrats are proposing could actually ALL be paid for by just taxing those making more than $400K annually. The Biden tax plan simply being a repackaging and renaming of H.R 1 from the House Democrats in early 2018.
2) That the cost estimates of ALL the elements of the Biden and Democrats tax plan are actually accurate.

So as a straight-forward estimate of the financial impact based on those two assumptions, the article is of course correct. However, previous estimates by several other financial firms on the true cost of each of the items in the Democrat tax plan, which again is merely H.R. 1 repackaged and renamed, over the last two years have shown that:

1) It is impossible to pay for ALL of the elements of the Biden tax plan by just making $400K or more annually.
2) A more accurate true cost of ALL the elements of H.R. 1 added up to a minimum of $96 Trillion dollars over a 10 year period or a minimum of an additional $9.6 Trillion dollars in new spending annually.

If you add our current federal budget of approximately $4.5 Trillion dollars annually on top of the additional spending proposals in the so-called Biden Tax Plan, what you get is an annual federal budget of $14.1 Trillion dollars. Lets just round it down to an even $14 Trillion a year. Now please tell me again how this federal budget gap is going to NOT impact anyone in the middle class. You could confiscate the entire wealth of the top 1 percent and it would only fund the federal government for less than six months. Then those people are broke. Please don’t tell me they’ll make everything that took to years or decades to make will somehow be made back in less than a year. Lets deal with some reality here. Who do you think the Democrats will train their sights on then to fund their Utopian socialist paradise? Hint: Look in the mirror for your answer.

PATRICIA LAFERNEY
PATRICIA LAFERNEY
3 years ago

MY AOL PUTS THIS IN MY SPAM ACCOUNT. WHYI LOVE AMAC AND WHAT TRUMP HAS DONE FOR AMERICA. THE DEMS TRULY HATE EVERYTHING HE DOES FOR US. I VOTE MY FAITH AND I AM A CHRISTIAN AND I KNOW GOD WOULD NEVER APPROVE OF ANYONE WANTING TO KILL BABIES.

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