Saturday, July 18, 2020

Is Joe Biden Good for Retirees?

     Presidential candidate Joe Biden recently announced his economic plan for America. Normally, I try to stay away from politics on this blog. But a tax plan is something you can analyze, not just to judge whether you're for it or against it, but in terms of who it would help and who it would hurt.

     By way of full disclosure, I like to think I know what I'm talking about when it comes to these matters (I did get an MBA back in the dark ages), but I am not an expert so I invite anyone to correct or expand on my analysis.

     Here's a rundown of his proposals.

     Income taxes. Biden wants to take back the Trump tax cut. For example, he would increase the top individual tax rate for incomes above $400,000 from the current 37%  to the pre-tax-cut level of 39.6%. This might affect certain individual retirees ... but I doubt those individuals would get much sympathy from the rest of us.

     Payroll taxes. Biden wants to impose a 12.4% payroll tax on wages over $400,000. Currently, only wages up to $137,700 are subject to payroll tax. The new tax would benefit retirees since it would help shore up Social Security. It would benefit retirees even more if Biden didn't create a "donut hole" to exempt wages between $137,700 and $400,000, and just make all wages subject to the payroll tax.

     Capital gains taxes. He proposes raising the capital gains rate up to the same rate as earned income. Many people think this is perfectly fair -- why should investors get a tax break over workers? -- but make no mistake, it would be costly for anyone who has built up investments outside of an IRA or 401k.

     Itemized deductions. Biden would restore a higher limit, up to $400,000, on itemized deductions. This would be a favor for high income people in high-tax states such as New York and California, bringing them a tax cut. But who retires to New York or California? So theoretically it would hurt the rest of us, since we'd have to make up for those lost revenues.

     Corporate income taxes. Biden proposes raising the corporate income tax from 21% to 28%, which is halfway back to the old rate of 35%. Obviously, increasing the corporate rate doesn't affect individuals, except in a very indirect way. Some Wall Streeters warn a corporate tax increase could take down the stock market by 10 - 25%. But that's sheer speculation. If the stock market takes a tumble it's much more likely to be caused by the Covid economy than a corporate tax plan.

     Minimum corporate tax. He would create an alternative minimum tax on corporations with profits of more than $100 million. The idea is that it would tax at least some profits of companies, such as Amazon and Netflix, that have evaded taxes by the clever management of tax laws and business regulations.

     Special interests. Biden would offer tax credits to small businesses for adopting workplace retirement plans. This would not help current retirees, but it would help many future retirees who work for small businesses. He would expand some tax credits for renewable energy and restrict tax credits for fossil fuels. Again, this wouldn't affect current retirees; but it would make one small step toward helping the future of the planet. He's also proposing an $8000 tax credit for child care, eliminating some real-estate tax loopholes, expanding Affordable Care Act tax subsidies.

     Bottom Line. Only you can decide whether Joe Biden will make you richer or poorer, whether his ideas strike you as "more fair" or "more just" than the current system. But I can tell you two things:

     1) The plan is hardly radical. That may disappoint progressives, but reassure moderates. He is not proposing a wealth tax or even an increase in the estate tax. He is not proposing a single-payer medical plan. Instead, he calls for an extension of Medicare and an expansion of Affordable Care Act. He has put forth a more ambitious climate-change plan, but has not said how he would pay for it (so you have to question whether it's real). As a response to the economic upheaval caused by Covid-19 he claims he'll create at least 5 million "good paying" jobs in clean energy, research and development, and minority-owned businesses.

     2) Joe Biden's plan will not make the U. S. tax system any simpler. Unlike Amazon or Netflix, we will not be able to "game" the tax system, yet we will still need an accountant or Turbotax just to fill out all our tax forms. And the lawyers and accountants who feed off the complications of the tax code will not have to worry about any loss of business.

32 comments:

DJan said...

It sounds fair to me. I hope we get a chance to try it out. Thanks for all the information on it, Tom. :-)

Sue said...

Dear Tom, i'm no financial expert either, but punishing the well-to-do is wrong. Taxes are high because too many young women hook up with, and have (fatherless) children to deadbeats - killing babies isn't the answer either.

Juhli said...

I retired to California and would happily pay more taxes to have a fairer and better country to live in. Perhaps not the usual retiree view but I suspect not that uncommon.

Barb said...

I am.not opposed to higher taxes hastening that improves the quality of living. Ive lived in places with very high taxes where thst has meant both increased services and lowered fees in other areas. Im not in favor of punishing the rich in any way. I am in favor of making them.pay at least their fair share. But for me this political.will not primarily be about the economy

Tom said...

Like I said, my intention in this post was not to say I'm either for or against Biden's plan (or how I might do it differently), but just to explain it as best I could. I agree, this year especially, people will probably not be voting primarily on the economy ... but it's still important.

The Liberty Belle said...

I daresay that I need a better understanding of how all of this works. Thank you for sharing your informed insights on this matter.

Olga said...

Don't really know much about it really but if it's not simpler I will still be paying someone to do my taxes.

ApacheDug said...

Wow--Tom, thanks very much for laying out Biden's plans in terms easy to follow & understand. I admit I cringed when I read about capital gains being taxed like earned income--ouch, over half of my retirement money comes from non-IRA investments--but I can't help but think it's only fair. All I know is, good or bad for me personally, Joe Biden has my vote.

Arkansas Patti said...

Thanks for the explanation Tom. Fortunately or maybe not, I am old enough and poor enough that I no longer qualify to pay taxes. Still I have always been in favor or fair taxing. I knew a couple of rich folks who paid very little or even no taxes.

Fred said...

I have no problem with anything listed. What does amaze me are viewpoints that lazy poor people are the cause of our current financial problems. Here is a small list of why we are so far in the hole financially. These things go back many decades. Military expansionism, tax cuts that were never paid for, useless wars with no funding, defense contractors with cost plus contracts, bankers creating investment products guaranteed to blow up, our refusal to address medical costs, politicians passing spending bills with no concern for the future, local and state governments agreeing to pension plans that are not sustainable, Americans low saving rate, the war on communism, the war on drugs, the war on terrorism & the next made up war to allow politicians to stay in power. The problem is us not them.

Hope Springs said...

Interesting analysis...thanks for sharing your thoughts.

Also interesting that people think single mothers and deadbeat dads are the cause of our economic problems. Obviously not a student of economics.

priscilla said...

The ultra rich need to pay their share...no question about it. The poor need help.
I'm so hoping Biden can do this.

Cop Car said...

Most of the plan, as you've outlined it, seems fair to me. The large problem is that large (and some "small") corporations can evade taxes by hiring enough MBAs and lawyers - and goes years/decades without paying the taxes they should be paying. I don't have an MBA (my MS is in engineering); but, I've a nit to point out: You wrote, "So theoretically it would hurt the rest of us, since we'd have to make up for those lost revenues." One assumes that the "hurt" for the rest of the people is included in the other points of the plan, so it seems misleading to single this out.

I'm taking as much income as I can do conveniently (took even more than my RMD on my IRA even though an RMD isn't required this year due to COVID-19) because I can see that we (husband and I) will be paying more taxes in the future - and should be.

IMHO, on average, we old people (I'm 82) are not as poor as were old people of several decades ago, because the Federal government has changed things to favor us. Other age groups have taken the hit. It's really difficult to even things up. Fairness is not only objective, but darned difficult to achieve.

Terra said...

I oppose this plan which is likely to hurt the economy, and thus, hurt us retirees. Any major problem with the stock market could wreck our IRAs and any pensions we receive. So, No, Joe.

Anonymous said...

The changes that the GOP did in regard to taxes favor the rich and big corporations. The new changes that are being proposed are more fair to the majority of Americans. The FED has pumped up the current economy that we will be paying for for a long time. The deficient is out of control. Obama inherited a mess but was able to turn the economy and the stock market around. If I ran my finances like this current administration I would be broke and homeless.

Janette said...

Do you read that the standard deduction would be back to the same as before? I do not cherish the idea of going back to loads of deductions, but I am positioning for the Biden economy. Lots of paper in my future (I don't use accountants). Holding on to my mountain of donations until January. We moved another chunk of our Traditional money into a Roth- paying the lower rates that we are currently in.
The estate taxes are already creeping up with the elimination of the long term Roth spending, but that is to be expected. Since the cry is "generational wealth" being a bad thing, I can see many other laws like this in the future. We have a gifting to do- so we need to do that this year while the limits are higher. I wonder about the small business write offs...
We are hoping to sell our house and build the next one before materials from overseas creep back into the system with a more global economy. I see no real incentives for companies to return to the US.
Our kids are in government jobs, they are positioning themselves for RIFs. In the end, they are well educated savers and should be fine.
Every administration does something different. The key is to not be caught off guard.
We can handle what comes. Just bring it on just don't burn down the country with the vote count :)

Linda Myers said...

Good to have this information. Biden will have my vote regardless.

Elle said...

Does everyone realize the "Trump tax break" was only for the length of 2 terms in office? It all reverts in 2025.

I really want a flat tax in this country. And I don't care if it's 15%, 20% or even 25%. I just want the wealthy to pay as high a percentile as I am required to. I worked for surgeons for years. I paid a higher tax rate than they-I don't have their deductions or "business write-offs". Same with my farmer brother who I argued with every April about our respective tax rates.

Unemployment would certainly rise for accountants, attorneys etc. But I really don't care....callous here....paying my taxes without loopholes. :-(

Somehow we've got to pay for Trumps' Trillions!

gigi-hawaii said...

I don't pay taxes so it doesn't matter to me.

Tom said...

I think we all want the wealthy to pay their fair share (whatever that means, and we can argue about that all day long about how much that is) but I don't think a flat tax gets us there. A flat tax, if not regressive, is at least non-progressive. In my considered opinion the way to do it is to get rid of most deductions and special exemptions, simplify the code, and find other more useful work for lawyers and accountants. However ... I'm afraid Joe Biden does not read this blog. Too bad!

Elle said...

Get rid of "most" deductions? What should be kept then? The Trump structure capped deductions. Why? Then the standard deduction kicks in because of the cap. I really don't care but let's make it equal across the board.

Why does a business person get to buy their personal use vehicle as a business expense? Food purchases-business expense? Fuel for household vehicles-business expense. So sick of it. How does a guy who pays cash for a $70k vehicle tell me he lives on $600 month? It's crap. The system is rigged.

I'll say it again. I want him to pay the same percentile of income as I do. Not less.

Janis @ RetirementallyChallenged said...

The tax system has favored the rich and ultra-rich over middle income tax-payers for many years and it's time to bring it back to a fairer, more just system. I like what Biden is proposing (although I think it could go farther). I would also like to see the IRS fully-funded so people and corporations don't feel they can cheat with impunity.My husband and I may end up paying more under Biden's plan, but that's OK. We cannot support fairness only if we don't lose any of our goodies. Oh, and the belief that taxes are high because of unwed mothers and deadbeat fathers... that makes no sense. Maybe studying a little economic theory might help.

Sue said...

Dear Hope, kids who grow up in broken homes tend to not do as well - in school, and later on the job - as kids whose parents are married. Kids who come from stable homes tend to not need (the multitude of) taxpayer-funded social services.

WD-40 said...

Actually, I don't know why anyone making less than $100K should have to file a tax return, let alone pay taxes. Think of the money we could save by reducing the size of the IRS that is dictated by the sheer volume. If IRS pukes could be freed from trivial pursuit, they might actually get the high roller returns audited to a degree that would bring in much of the income tax that is owed or scammed by the really rich people and companies.

And...giving companies the same rights as persons was ridiculous. Is anyone in the legislative branch considering how to fix that?

Barbara Miller said...

Thanks for the information. I think I can live with it. Btw, you still have my old blog (Baby Blogging Boomer) on your following list. I am now at (Welcometosimple.blogspot.com). Thanks and keep sharing the good info.

Anonymous said...

Hi Tom.
To be fair (and balanced) are you going to do an equal post on what Donald Trump's plan will be? Or do you think it will be more of the same, so no need? He does have a few things, such as a health care plan to be announced next week.
Just asking.
Thank you.

Anonymous said...

I think Trump's health care plan, as the Republican's plan since he was elected in 2016 is to repeal and replace ACA (AKA Obamacare). The plan was to use a reduced amount federal funding for ACA and give it to individual states and let them come up with their best healthcare plans. This plan has not been successful because so many unknowns. Right now with Covid-19, we can see how letting individual states to decide on healthcare would be as problematic as the issue of asking people to put on masks.Chaotic is the word that comes to mind. Nevertheless, recently, Trump administration asked the supreme court to strike down ACA, at the same time the enrollment to ACA increased closed to 1/2 million people due to covid-19 that people lost employment and lost their usual coverage. So, the new proposal would likely be free market, let the insurance companies and individual states decide. The proponents for ACA are to continue but to improve the ACA. Which approach seems to be a rational one?

Anonymous said...

I love Fred. Simple-minded people blaming the poor. When will this ever end? Jeesh.

Carol Cassara said...

This is excellent analysis and helps me understand it far better. PS there is no requirement for you to give equal time to the opponent. Just saying. "Fair" is a relative word.

Madeline Kasian said...

Good information, but I don't care WHAT Biden promises. My ONLY consideration in this next election is to get the orange guy out of there.I am frightened to death for the future of my country.I will vote Blue no matter who no matter what. I am voting AGAINST the chaos and inhumanity in our White House. I may not even watch the debates.I find listening to the idiot in chief boils my blood..I only READ the news. My vote is secure. Bring on the election!!!!!!!

Jennifer said...

I hardly think it's "punishment" to expect the well-to-do to pay their fair share of taxes!

And taxes are high because of promiscuous women and deadbeat dads? Really? Really?

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