President Joe Biden will address the 76th United Nations General Assembly in New York on September 21, 2021.
President Joe Biden and Democrats have announced plans to increase taxes on households with annual incomes above $400,000 and reduce or maintain taxes on households below the threshold.
But what is the significance of this tax system North Star?
At its core, the policy aims to raise more tax revenue from the wealthiest Americans. According to tax data and policy experts, incomes of at least $400,000 represent roughly the top 1% to 2% of households.
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But experts say it’s not entirely clear why they chose $400,000 as the line that differentiates between rich and low-income people, as the numbers don’t exactly match household tax figures. . Rice field.
“It’s an arbitrary limit,” said Leonard Berman, who co-founded the Tax Policy Center, a joint project between the Brookings Institution and the Urban Institute. “It cannot be justified analytically.”
A spokesman for the White House and the Houseways and Means Commission did not return requests for comment.
Top 1% or 2%?
The IRS data on this issue is a bit vague. The agency reports tax data using a breakpoint of $500,000 instead of $400,000.
According to the latest IRS data, Americans with incomes of $500,000 or more were among the top 1.1% of tax filers in 2018. (This data does not differentiate between tax status such as single, married, head of household, etc.)
Extrapolated, the top 2% of people earn at least $400,000, according to Garrett Watson, senior policy analyst at the Tax Foundation.
However, these numbers do not represent all American households. Only those filing tax returns are included.
Therefore, the data distorts the ratio by excluding millions of undeclared individuals who are predominantly low-income. (For example, the Tax Policy Center estimates that about 27 million people did not declare in 2021.)
Including this large low-income group in the estimate, Watson said, incomes of $400,000 are likely to be closer to the top 1% of all American households.
Tax pledges determined at the level of income are nothing new. For example, Democratic presidential candidates such as John Kerry and Barack Obama used $200,000 and $250,000 in revenue, respectively, as key elements of the tax system during campaigns, Watson said.
Watson said Biden’s high $400,000 baseline could reflect rising income and wealth inequality in the United States.
There may also be geographic legitimacy – the realization that national standards make $400,000 a higher income, but in some major cities with high cost of living it may not be very far off.
“In Washington, New York, Los Angeles and San Francisco, it is lower than in all other countries,” Berman said.
Earlier this year, the White House announced a $400,000 guiding tax system to expand the US safety net and invest in using new tax revenue from the wealthy to mitigate climate change. I did
The House Democratic Party announced a law last week that follows its policy objectives. For example, a single taxpayer with an income of $400,000 or more (and a couple with an income of $450,000 or more) would have a maximum marginal income tax rate of 37% to 39.6%. Their maximum tax rate on the sale of highly valued stock and other assets would increase from 20% to 25%.
The House bill would raise taxes in 2023 to 1.6% for people with incomes of $500,000 to $1 million and 10.6% for those with higher incomes, according to estimates from United Tax Scorekeeper, a nonpartisan tax scorekeeper in Congress. I will Estimates suggest that low-income and middle-income earners will either get a net tax cut or the tax level will be reduced.
The Senate Democratic Party has yet to announce the tax bill.
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