What the Proposed Tax Plans Would Mean for the Rich

Since his January inauguration, President Biden has already enacted one major piece of legislation: the American Rescue Plan Act (ARPA). While the ARPA was largely aimed at addressing the economic suffering caused by COVID-19, Biden’s next two proposed pieces of legislation — the American Jobs Plan and the American Family Plan — look beyond the pandemic… and come with some major tax overhauls. 

The proposed American Jobs Plan invests over $2 trillion in American infrastructure with many areas falling under the infrastructure umbrella (electric vehicle stations, freeway repairs, expanding internet access, removing lead pipes in water systems, improving VA hospitals, improving care for the elderly, as well as scientific research and development). 

The American Jobs Plan will be paid for with a complex restructuring of corporate taxes.

Corporations’ that book income (income reported to shareholders, which may not reflect taxable income) would be taxed at least 15% and the corporate income tax rate would increase to 28% with multinational corporations taxed at a rate of 21% or more. 

Many of the key provisions in the Made in America Tax Plan, which helps pay for the American Jobs Plan, are aimed at bringing jobs from American corporations back to the US while making it more difficult for corporations to escape to overseas tax havens where the corporate tax rate is negligible. 

The American Families Plan is similarly broad in scope. If passed, an investment of $1.8 trillion would go towards paid family leave, free pre-k, free community college, and increased child tax credits.

The laundry lists for both plans go on and on, but a massive tax overhaul of this sort will raise taxes on two groups in particular: wealthy people and large corporations. 

If passed, the plans would bring about a number of tax changes that apply to the wealthy. First, there would be an increase in income tax for individuals making at least $452,700 per year, or married couples (filing jointly) making at least $509,300 per year. Instead of the current 37%, the income tax rate for these households would be 39.6%. The new capital gains tax rate would also be 39.6% for such high-income households.

Additionally, the American Families Plan would put an end to the ‘Step-Up in Basis’ rule which allows families to pass property down to heirs without being taxed for the appreciation in property value.

For example, if your parents bought a house in 1995 for $300,000, and passed it down to you in 2021 when the property is worth $1 million, Step-Up in Basis exempts you from paying taxes on the difference in value. If the American Families Plan becomes law, you would have to pay taxes on the additional $700,000. One exception would be family farms. 

Ultimately, there might be many changes to the tax code on the horizon — or not. Currently, the American Families Plan and American Jobs Plan are only proposed pieces of legislation. If both plans fail to pass at either the House or Senate levels, none of these proposed tax increases would be enacted. If the American Families Plan passes while the Jobs Plan fails, the taxes on the wealthy will increase as outlined above, while corporate taxes will not increase. Moreover, if the Jobs Plan passes while the Families Plan fails, then the reverse will happen — corporations will see their taxes go up, but the wealthy won’t.

Only time will tell which bills become laws. 

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