Earning less than $400,000 a year? You might recall then-presidential candidate Joe Biden’s promise during the election cycle that you’d be spared from any tax increase under his plan. Making more than $400,000? Then, all bets are off.
The good news is that about 95 percent of Americans — an overwhelming majority — do not make more than $400,000 per year. The bad news is that for the 5 percent of the population that does, Biden wants to raise your income tax rate from 37 percent to 39.6 percent to fund his American Families Plan. We’ll briefly touch on the American Families Plan later on in this piece, but first let’s take a look at exactly who will be impacted if the bill passes. It’s worth noting that whether the bill passes or not, the top marginal income tax rate is expected to increase to 39.6% in 2025 regardless.
Who is Impacted?
First, things first. If the American Families Plan passes, you’re right to wonder just who will be impacted by the top marginal income tax hike up to 39.6 percent. Here are the basics of that:
- Individuals with a taxable income of at least $452,700.
- Married couples filing jointly with a taxable income of more than $509,3000.
The rate hike would also apply to heads of households earning at least $481,000 and married couples who file separate tax returns yet make at least $254,650.
Should Congress pass the American Families Plan, Biden would hold his promise on not raising taxes for any households earning less than $400,000 per year. Additionally, it’s expected that raising taxes to 39.6 percent would raise some $132 billion over five years to help fund Biden’s $1.8 trillion plan, which we’ll get to in the next section. Should this bill pass, the increased tax rate would take effect in 2022.
Keep in mind that even if Biden’s American Families Plan fails to pass, the tax rate would increase to 39.6 percent in 2025 due to the way the 2017 Tax Cuts and Jobs Act was structured. Either way, the most wealthy Americans are likely to see their taxes increase — it’s just a matter of whether this happens in the near-term or longer term.
About the American Families Plan
Criticized as a socialist policy by Republicans but hailed by many Democrats, the American Families Plan aims to either continue or enhance many of the things that were included in the $1.9 trillion American Rescue Plan. It would include credits for child care for low- and middle-class families, an investment in child care workers, make at least 2 years of community college free, enhance Pell Grants, provide paid family/medical leave, invest in universal preschool, strengthen the educational workforce and keep the expanded child tax credit through the year 2025.
However, this plan is no slam dunk. It’s already drawn some ire from progressive lawmakers on not including enough and has irked some more moderate Democrats because of its size and cost.