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Raising Taxes on Income Over $400K Doesn’t Cover US Budget Deficits
The federal budget deficit hit an all-time record of $3.1t last year and is to be even higher in 2021 with the $1.9t stimulus bill just passed. A potential infrastructure bill, which could run as much as an extra $4 trillion over the next ten years is next. If the top personal tax rate of 37%is moved back to 39.6%, which is where it was for eight years under President Clinton, the last four years under President Obama, and the first year of President Trump. would generate an additional $20 billion in extra revenue per year, based on 2018 tax data. Raising the 35% income tax bracket to 39.6% would generate an extra $13 billion per year. And this year the 35% tax rate kicks in at $209,426 for singles and $418,851 for married couples, which means that path would violate the $400,000 promise. Either way, it's like trying to fill a swimming pool using a teaspoon.
Raising the 35% and the 37% brackets to a 100% tax rate, would have raised about $681 billion in 2018, if people kept working for zero income. Big money, but still not close to bridging the budget gap.
The big spenders in Washington, DC know that tapping into the incomes of people making less than $400,000 per year is necessary to pay for all their spending promises, so Transportation Secretary Pete Buttigieg's trial balloon about taxing auto mileage has to be taken seriously.
But getting 50 Senate votes for a new federal tax system on mileage or for Senator Elizabeth Warren-style wealth tax is unlikely. And, unless the filibuster is removed, the same goes for applying the Social Security tax to wages and salaries above $400,000.
The tax hike, which is more imminent and could be implemented on January 1, 2022, includes the following parts.
The Biden team has suggested getting rid of the step-up basis at death for capital assets, but it would be an administrative nightmare. Moderate Senators would listen to horror stories about trying to adjust the basis for small farms and business owners and say, no. The Biden team has also supported applying the 39.6% tax rate to the capital gains and dividends of the highest earners. The long-term capital gains tax rate hasn't been that high since the late 1970s; the dividends rate since 2001. While all of this is conjecture, they are being leaked by the Biden team.
The federal budget deficit hit an all-time record of $3.1t last year and is to be even higher in 2021 with the $1.9t stimulus bill just passed. A potential infrastructure bill, which could run as much as an extra $4 trillion over the next ten years is next. If the top personal tax rate of 37%is moved back to 39.6%, which is where it was for eight years under President Clinton, the last four years under President Obama, and the first year of President Trump. would generate an additional $20 billion in extra revenue per year, based on 2018 tax data. Raising the 35% income tax bracket to 39.6% would generate an extra $13 billion per year. And this year the 35% tax rate kicks in at $209,426 for singles and $418,851 for married couples, which means that path would violate the $400,000 promise. Either way, it's like trying to fill a swimming pool using a teaspoon.
Raising the 35% and the 37% brackets to a 100% tax rate, would have raised about $681 billion in 2018, if people kept working for zero income. Big money, but still not close to bridging the budget gap.
The big spenders in Washington, DC know that tapping into the incomes of people making less than $400,000 per year is necessary to pay for all their spending promises, so Transportation Secretary Pete Buttigieg's trial balloon about taxing auto mileage has to be taken seriously.
But getting 50 Senate votes for a new federal tax system on mileage or for Senator Elizabeth Warren-style wealth tax is unlikely. And, unless the filibuster is removed, the same goes for applying the Social Security tax to wages and salaries above $400,000.
The tax hike, which is more imminent and could be implemented on January 1, 2022, includes the following parts.
- A top rate back up to 39.6%
- A corporate rate of 28% up from 21%.
- A top rate on capital gains and dividends at about 24% vs. the current 20%
- A lower exemption for the estate tax.
The Biden team has suggested getting rid of the step-up basis at death for capital assets, but it would be an administrative nightmare. Moderate Senators would listen to horror stories about trying to adjust the basis for small farms and business owners and say, no. The Biden team has also supported applying the 39.6% tax rate to the capital gains and dividends of the highest earners. The long-term capital gains tax rate hasn't been that high since the late 1970s; the dividends rate since 2001. While all of this is conjecture, they are being leaked by the Biden team.
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