In past episodes of the podcast David described the impact of a blue wave in the upcoming November election and what may happen to your finances if Joe Biden becomes the next president.
The first major change would likely be the loss of the stepped up basis which could result in a large increase in the taxes on money you inherit in the future.
No matter who gets elected in November tax rates will have to go up. There is a rumour that a fifth part of the Covid-19 relief bill will be coming in the next few months and the US will likely be at least an additional $4 trillion in debt by the end of the year.
Biden currently has a probability of 55% of becoming the next president in November according to the odds in Vegas. A lot can change by the fall but that’s where the odds sit at the moment.
Unlike Elizabeth Warren, Joe Biden is not pushing for a wealth tax. The biggest takeaway is that Biden is not talking about raising taxes on anyone making less than $400,000 but he is talking about raising taxes on the wealthiest Americans prior to 2026.
This would require a change in the existing law, but the Republicans are trending towards losing the Senate which means it is a possibility.
This would probably mean the 37% tax bracket would go up to 39.6%, but all the other tax brackets would remain the same. This would also mean that come 2026, you would not experience a reversion to pre-2018 tax rates and could actually make the tax cuts made at the end of 2017 permanent.
We can’t keep tax rates this low for very long without some very unpleasant consequences for Social Security and Medicaid and this may be a way to do some political maneuvering in the meantime.
If the expiration date of the current tax cuts becomes null and void due to a change in the law, that could mean you won’t have the same urgency to condense your conversions in the remaining six years.
Corporate tax cuts will go up from 21% to 28%, which will have an impact on GDP. Biden is also looking at capping the value of itemized deductions at 28% which would be a stealth way of eliminating deductions for the top earners.
Biden is not levying any direct taxes on the middle class, but they will have to shoulder the burden of the other tax increases as those increased costs are passed on to consumers.
The increase in taxation amounts to about $3.4 trillion over the next decade, but that money is not earmarked to pay down debt or create efficiencies in the federal government. It’s all designated towards increased spending above and beyond what we are already paying for.
David Walker tells us we need to either reduce spending, increase revenue, or some combination of the two. Biden is increasing revenue but also increasing spending, so he will not be doing anything to solve the structural issues in the US entitlement programs.
By 2026, the amount of interest on the debt will be taking up a considerable amount of the federal budget and crowding out all the other spending. Every article says we have to pay down the debt. If we are not addressing the debt with all this increased spending we are hamstringing ourselves as a country and we will be forced to make some very tough decisions by the end of this decade.
It’s not about whether the additional programs are good or bad, it’s about the implications of this tax policy for the future viability for the country. Taxes will have to increase even further to get us out of this terrible position.
If the 2017 tax cuts become permanent, that means you have a wonderful opportunity to pay lower taxes in converting your taxable money to tax-free. It is possible that taxes will be reverted to 2017 levels but that doesn’t seem to be the case.
Biden will also probably raise the threshold on wages that are subject to Social Security tax and MediCare tax, but anytime you take money out of the economy and put it into federal programs, that money is not being used as efficiently.
If Joe Biden does get elected there will be changes on a number of fronts where the average American will not see an increase in their personal taxes, but will feel the impact of the increase of corporate taxes in higher prices.
