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This story is part of a series about the new Biden administration and what Biden has planned for its first 100 days – and beyond.
President-elect Joe Biden campaigned for a promise to boost Americans' finances through tax increases for wealthy Americans and businesses – but how long will it be for those promises to become law?
It turns out it could be faster than we thought: At a press conference on Thursday night, Biden unveiled its $ 1.9 trillion stimulus plan This includes a big change to the popular Child Tax Credit and Earned Income Tax Credit. However, the rest of his tax legislation agenda will likely be proposed later in his presidency.
Connected: Biden Income Tax Calculator: How Can Your Taxes Change?
Read more about Biden's first 100 days:
With Democrats in control of the presidency and Congress, Biden's chances of reaching his tax-making agenda have improved – but the early part of his presidency will focus on restoring the pandemic-stricken economy and steering a slim majority in the Democratic Senate .
Here's what he wants to achieve with his tax plan and when he might have the opportunity.
First 100 Days: Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) expanded
Biden moved quickly on his first tax change. On Thursday, he released details of changes to the Child Tax Credit and Earned Income Tax Credit Part of a larger stimulus package.
For one year, Biden's Covid-19 plan temporarily increases the child tax credit to $ 3,000 for each child of age 17 and under and $ 3,600 for children under 6. Additionally, Biden's plan would fully refund the credit for one year. A refundable tax credit not only reduces the amount of tax owed, but also provides a tax refund even if you are not in debt.
Under current law, taxpayers can claim a child tax credit up to $ 2,000 per child under the age of 17. The tax credit is refunded up to $ 1,400 for each eligible child. This means that if you owe nothing in tax, you can be reimbursed up to this amount, or it can reduce the amount you owe.
Not everyone is eligible for this credit. The amount depends on your Modified Adjusted Gross Income (MAGI), which is your gross income, adjusted for certain deductions and income. Credit will gradually expire for individual taxpayers whose MAGI is over $ 200,000 ($ 400,000 for couples filing a joint tax return).
His plan also includes expanding the Earned Income Tax Credit (EITC) for the year. Biden has proposed increasing the EITC for adults without children from $ 530 to about $ 1,500 and raising the income limit from $ 16,000 to around $ 21,000. The expansion of the EITC would increase the incomes of millions of workers, according to Biden's Policy Brief published on Thursday.
The rest of Biden's tax plan will likely have to wait for the economy to improve
With a tightly democratically controlled Senate and House, we are unlikely to see any major changes to tax law as the Biden presidency begins, other than the proposed widening of the child tax credit and the earned income tax credit – and so far this is only a temporary measure. Biden's best economic advisor, Jared Bernstein, said during a Politico event that early tax increases "depend very much on economic conditions".
And while his tax plan will primarily affect the bottom line of wealthy Americans, low- and middle-wage households could benefit from increased tax credits, as outlined in his plan American rescue plan– While they are a temporary measure as part of a larger stimulus package, Biden may push for the changes to be made permanent.
Here are some of the Core proposals of Biden's tax plan:
- Tax brackets for high incomes: Biden suggests raising the highest individual income tax bracket for Americans who earn more than $ 400,000. The tax rate will be increased from 37% to 39.6%.
- Capital gains tax: His plan provides a 39.6% tax rate on income over $ 1 million for long-term capital gains and qualifying dividends.
- Individual deductions for people with high incomes: Biden suggests limiting individual deductions, which include state and local taxes, medical expenses, mortgage interest, and other deductions, to 28% for high-income taxpayers. In general, if a high income taxpayer a Marginal tax rate from 32% they can reduce their tax liability at the same rate (32%). However, this suggestion would mean that despite your higher tax rate, you could only save up to 28%.
- Increase corporate tax rates: Biden proposes increasing the corporate tax rate from 21% to 28%. In 2017, the corporate income tax rate fell from 35% to 21% under the Tax Reduction and Employment Act Increase in the national deficit and Record share buybacks triggered at US companies.
- Corporation minimum tax: Biden also suggests a minimum tax of 15% for businesses with book income of $ 100 million or more. This corresponds to the amount reported in the company's annual financial statements. This could have a significant impact on large corporations, which historically have been able to deduct billions in profits from their taxes regardless of book revenue.
Biden's administration could face other obstacles as he pushes his broader tax plan forward. Because of the small majority in the Senate, his administration would need the unanimous approval of the Democrats and the support of some Republicans. "This could limit the scope and scope of Biden's tax hikes, especially as the cleanup is still ongoing," said Garrett Watson, senior policy analyst at The Tax Foundation.
Biden may use budget reconciliation to pass key tax proposals
While it will be difficult to keep his tax agenda on track, Biden has a trick up his sleeve. Watson believes that in late 2021, Biden could attempt to pass large tax initiatives through a process known as budget reconciliation.
The budget vote is a special process that makes it easier for the Senate to pass budget laws. It requires a simple majority of only 51 votes pass a law, as opposed to regular laws, which require a majority of 60 votes. With the recent Georgia Senate victories, the Senate is now 50% split between Democrats and Republicans, and Harris will act as a tie-breaker, making it easier to pass tax legislation through this process.
While budget reconciliation is a quicker way to get an invoice passed, it still requires a process before it can be implemented. The process involves directing key committees such as the Senate Finance Committee to create a budget that meets specific spending targets. The committees then vote the budgets to produce a draft budget balancing act that would do this require the simple majority of the Senate to pass.
It's also important to note that the Senate can only consider the budget reconciliation process for expenses, income (including taxes), and debt limit bills, and can only apply the process once a year Budget cyclethe process of preparing, coordinating and approving a budget for the fiscal year.
The budget reconciliation process was used by previous presidential administrations to pass important budget and tax laws. In 2010 the administration of President Barack Obama uses the budget reconciliation process pass part of the Patient Protection and Affordable Care Act (ACA).
President Donald Trump's administration also passed the 2017 Tax Cuts and Employment Act as part of the budget reconciliation. At the time, Republicans controlled both the House and the Senate – but the administration used the tool to ensure this successfully passed the tax reform law within Trump's first year in office.