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.