Alfred Kemfe

Biden's Plan Would Create Payroll Tax 'Donut Hole'

Former Vice President Joe Biden. (Photo: Ryan Collerd/Bloomberg) Former Vice President Joe Biden. (Photo: Ryan Collerd/Bloomberg)

Raising taxes will be a given, regardless of who wins the White House — that’s the consensus as the nation deals with the deficit and debt fueled by the pandemic stimulus.

Among Democratic presidential candidate Joe Biden’s top tax moves would be to create a Social Security “donut hole” payroll tax.

As the Tax Foundation explained in its analysis, Biden’s plan imposes a 12.4% payroll tax on income earned above $400,000, evenly split between employers and employees. This revenue would go to the Old-Age, Survivors, and Disability Insurance programs — that is, the Social Security trust funds.

“This would create a ‘donut hole’ in the current Social Security payroll tax, where wages between $137,700, the current wage cap, and $400,000 are not taxed,” the Tax Foundation states.

According to a new analysis by the Wharton School at the University of Pennsylvania, Biden’s tax plan would, in a 10-year window, raise $3.375 trillion in new tax revenue while increasing spending by $5.37 trillion.

Including macroeconomic and health effects, by 2050 the Biden platform would decrease the federal debt by 6.1% and increase GDP by 0.8% relative to current law, Penn Wharton states.

“Almost 80% of the increase in taxes under the Biden tax plan would fall on the top 1% of the income distribution,” according to the analysis.

Under the Biden tax plan, households with adjusted gross income of $400,000 per year or less would not see their taxes increase directly but would see lower investment returns and wages as a result of corporate tax increases, according to the analysis.

Those with AGI at or below $400,000 would see an average decrease in after-tax income of 0.9% under the Biden tax plan, compared to a decrease of 17.7% for those with AGI above $400,000 (the top 1.5%).

Biden’s tax plan, the analysis explains, focuses on raising taxes on corporations, capital income, and ordinary income of high-income filers by:

  • Implementing a Social Security “Donut Hole”;
  • Repealing elements of the Tax Cuts and Jobs Act (TCJA) for high-income filers;
  • Raising the top rate on ordinary income;
  • Eliminating stepped-up basis;
  • Taxing capital gains and dividends at ordinary rates;
  • Limiting itemized deductions; and
  • Raising the corporate tax rate.

Biden stated recently that he would raise the corporate tax rate from 21% to 28% “on day one.”

Biden told CNN that “the reason I’d make the changes to corporate taxes, it can raise $1.3 trillion if they just started paying 28% instead of 21%.”

The corporate tax rate was slashed from 35% to 21% by the Tax Cuts and Jobs Act — the sweeping tax overhaul enacted in 2017.

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