Democratic presidential nominee Joe Biden’s campaign website says that, if elected, he will not “ask a single person making under $400,000 per year to pay a penny more in taxes.” It also calls tax cuts under President Donald Trump’s administration a “tax giveaway primarily for large corporations and the wealthy.”
But, if Biden repeals the Tax Cuts and Jobs Act of 2017 (TCJA), will he be able to pull through on both of these campaign promises?
In the first 2020 presidential debate, Biden committed to “eliminat[ing]” the TCJA. His running mate Kamala Harris reiterated Biden’s commitment, saying the Biden administration would repeal the Trump tax cuts “on day one” in the vice presidential debate.
A voter raises his hand when Joe Biden asks if anyone benefited from the Trump tax cut:
“If you elect me, your taxes are going to be raised, not cut.”
— Daily Caller (@DailyCaller) March 2, 2020
An analysis of the impact of the TCJA from The Heritage Foundation in 2018 found that in every congressional district nationwide, the average-income household is paying less in taxes than it was prior to Trump’s tax reform. The Heritage Foundation concluded in the analysis that if the Trump tax cuts were repealed in 2020, the average American would lose $26,906 in take-home income over the next 10 years. A family of four would miss out on $45,739 over that same period of time, per the same analysis.
The pro-growth policies of the Trump tax cuts led to significant economic growth. A Biden reversal of the TCJA is not the recipe for successful economic recovery from the Coronavirus pandemic. https://t.co/ywkUWQbUEJ
— ATR (@taxreformer) October 11, 2020
The TCJA decreased the marginal tax rate in five of the seven income brackets, according to the Tax Policy Center. The biggest drop in marginal tax percentage was given to the second, third and fourth tax brackets, which include middle-income Americans. Biden has committed to raising the top marginal tax rate back to 39.6%, but his campaign website does not specify whether or not the value changes to the tax brackets and their corresponding marginal tax rates will go back to pre-TCJA levels.
Even after the TCJA, the Tax Foundation has found income taxes remain the government’s primary source of revenue. The TCJA nearly doubled the standard deduction, increasing it from $6,500 to $12,000 for single filers and $13,000 to $24,000 for joint filers, per the Tax Foundation.
An estimation from the Tax Foundation in 2018 found that the benefits associated with these changes to the tax code would impact low- and middle-income groups the most by increasing the amount of deductions they are entitled to and decreasing the amount of time spent filing taxes. “The number of returns itemizing deductions will fall by 75 percent for those with income between $20,000 and $30,000 and 74 percent for those with income between $30,000 and $40,000,” the analysis concluded.
It also found the aforementioned tax deductions reform was estimated to reduce taxpayers’ time filing income taxes by 4 to 7%. When converted to dollar terms, the Tax Foundation found that works out to an estimated $3.1 billion to $5.4 billion in compliance savings.
A follow-up analysis of the impact of the increased standard deduction in 2019 by the Tax Foundation predicted that the percentage of tax filers who itemized their deductions was 17% lower than it would have been without the enactment of the TCJA. Earners within the 40 to 60 percentile range saw the largest decrease in itemization, which was predicted to be one-fourth of what it would have been absent the Trump tax cuts. (RELATED: Biden Criticized Trump’s Order Cutting Payroll Tax. During The Recession, Obama Said It Would Be ‘Inexcusable’ To Block A Similar Tax Cut)
Biden’s campaign website outlining his vision for tax policy does not specify whether he will attempt to maintain the increased standard deduction.
“Why in God’s should someone who’s clipping coupons in the stock market… pay a lower tax rate than someone who is a school teacher and a firefighter.” pic.twitter.com/e16Ut3tLil
— Daily Caller (@DailyCaller) October 16, 2019
The federal corporate tax rate dropped from 35% to 21% under the TCJA, which when combined with individual states’ corporate tax rate effectively ranges from 21% to just over 29%.
Prior to the TCJA, the United States had the highest statutory corporate income tax rate in the Organisation for Economic Co-operation and Development (OECD) at 38.9% (35 percent plus the average of state corporate income tax rates). At the time, the OECD average corporate tax rate was 23.8% excluding the United States.
Biden has proposed raising the federal corporate income tax rate to 28%, which would again take the United States’ corporate tax rate well over the current OECD average of 23.59%.
A Tax Foundation analysis of the Biden tax plan found that the increase in the corporate income tax accounted for nearly a 1% decrease in the long-run level of economic output, which is more deleterious to economic growth than any other provision in Biden’s tax plan that in total is expected to reduce economic growth by 1.5% in the long term.