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1 Garrett Watson, et al., Details and Analysis of Tax Proposals in President Biden's American Families Plan 1 (2021)

handle is hein.taxfoundation/dtlsadans0001 and id is 1 raw text is: Details and Analysis of Tax Proposals in President Biden's American Families Plan May 2021 Garrett Watson Senior Policy Analyst Huaqun Li Senior Economist Alex Durante Economist The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels. We are a 501(c)3) nonproft organization. ©2021 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org The Biden administration's proposed American Families Plan (AFP) would partially pay for about $1.8 trillion in new federal spending on education and family programs with about $661 billion in additional taxes on higher-income individuals and pass-through businesses like partnerships, sole proprietorships, and S corporations. The tax system would become more progressive than under current law through higher marginal tax rates on high earners and expanded refundable tax credits for lower-income taxpayers. The funding choices in the American Families Plan come at the cost of reduced economic output, fewer jobs, and lower wages. According to the Tax Foundation General Equilibrium Model, the American Families Plan's tax changes would lead to a 0.4 percent reduction in long-run Gross Domestic Product (GDP). Gross National Product (GNP) would fall by 0.6 percent, employment would decrease by about 64,000 full-time equivalent jobs, and wages would drop 0.4 percent. Our analysis does not account for the economic or revenue effects of the spending portions of the American Families Plan. It is valuable to consider the impact of the American Families Plan tax proposals to see the trade- offs of a particular way of financing the plan's proposed spending. The proposed American Families Plan would include the following major tax changes: Raise the top marginal income tax rate from 37 percent to 39.6 percent, which would apply to income over $452,700 for single and head of household filers and $509,300 for joint filers. Tax long-term capital gains and qualified dividends as ordinary income for taxpayers with taxable income above $1 million, resulting in a top marginal rate of 43.4 percent when including the new top marginal rate of 39.6 percent and the 3.8 percent Net Investment Income Tax (NlIT). Tax unrealized gains at death for unrealized gains above $1 million ($2 million for joint filers, plus current law capital gains exclusion of $250,000/$500,000 for primary residences). Erica York Economist

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