As President Joe Biden’s budgetary request to Congress, the president is expected to unveil a new minimum tax plan aimed at raising the federal taxes for some Americans — in particular, the richest ones. The proposed tax plan, for the most part, will not impact the average American family. However, approximately 20,000 people will be impacted and owe a 20 percent minimum in taxes. Here’s what you need to know.
What is the latest proposed tax plan?
The plan would make that minimum income tax set at 20 percent minimum, and over half of the revenue raised would come from people worth more than $1 billion. If a household is paying less than 20 percent due to tax-free, unrealized income, they’ll pay a “top-up payment” to meet the new minimum tax rate, which will close a loophole where the ultra-wealthy avoid paying taxes on their “unrealized income” that goes “untaxed for decades or generations.”
Basically, the average American will definitely not be affected by this.
The proposed tax plan is aiming to reduce income inequality.
According to The Washington Post, many people in the US who make more than a billion dollars pay less in taxes than the average American. As just one example that the tax system benefits the richest, currently, the federal government does not tax the increase in stock holdings until those assets are sold. (The wealthiest 10 percent of Americans own 80 percent of the stock in the United States.)
According to the White House Office of Management and Budget and Council of Economic Advisers, it’s estimated that 400 billionaire families paid an average federal tax rate of just over 8 percent this fall, for income between 2010 and 2018.
For perspective, this rate is way lower than the rate paid by the average American family. A 2019 story found that U.S. billionaires paid a lower tax rate than the bottom 50 percent of workers in the United States. The bottom half of American families pay an effective tax rate of about 24 percent. This 20 percent minimum tax would begin to close that gap.
What would the tax proposal mean for America?
“The Billionaire Minimum Income Tax will ensure that the very wealthiest Americans pay a tax rate of at least 20 percent on their full income,” the White House document says. “This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.”
With the new proposed tax plan, Elon Musk, owner of Tesla, would pay an additional $50 billion in taxes. Amazon founder Jeff Bezos would pay an additional $35 billion, according to the calculations by Gabriel Zucman, an economist at the University of California Berkeley, per The Washington Post.
The proposed tax plan could help fund programs aimed at bettering the lives of families. Officials at the White House estimate raising the tax for the wealthiest Americans would raise roughly $360 billion in new revenue over the next decade if it goes through. And it could help fund some of the programs the Biden administration is hoping to pass, including an increase in spending focused on child care, mental health, and other social programs. But Biden is also clearly aimed at lessening the deficit, too.