Just Taxes Blog by ITEP

What Biden Means By No Tax Increases on Anyone “Making Under $400,000”

What Biden Means By No Tax Increases on Anyone “Making Under $400,000”

May 22, 2020

Steve Wamhoff
Steve Wamhoff
Director of Federal Tax Policy

Presidential candidate Joe Biden said on Friday that under his proposals, no one with income below $400,000 would pay higher taxes than they do now. Does this make sense?

It is true that Congress and the next president have many options to raise trillions of dollars from people who have incomes even higher than that. But Biden’s suggestion is unreasonable.

People often assume this type of proposal is about identifying an income threshold to determine who is rich and therefore able to afford higher taxes. Biden’s proposals actually define an amount of income that would continue to be taxed at low rates for everyone, even for the very richest taxpayers.

Rather than identifying people with income above $400,000 as “rich” and subject to higher taxes, Biden’s proposals would raise taxes on income in excess of $400,000. This means, for example, that people with income of $405,000 would pay a higher tax rate on just $5,000 of income. Frankly, this would have no noticeable impact on their lives (regardless of how much some high-income people might complain about it).

This suggests that the $400,000 threshold is far too high.

The public is likely to be confused about what Biden’s $400,000 threshold means. A similar dynamic took hold when President Obama proposed allowing the Bush tax cuts to expire for incomes exceeding $250,000 for married couples and $200,000 for unmarried taxpayers. While the media debated whether a family making $250,000 was “rich,” the question was largely irrelevant because a family would need to make considerably more to pay significantly more in taxes under Obama’s proposal.

Citizens for Tax Justice demonstrated this in 2012, showing that married couples with incomes between $250,000 and $300,000 would, on average, only lose 2 percent of the Bush income tax cuts under Obama’s approach.

It turned out that families making around $250,000 were not really the target of tax increases under Obama’s proposal, and those making around $400,000 are not really the target of tax increases under Biden’s proposal.

If you think people making a little more than $400,000 a year should pay noticeably higher taxes than they do now, then Biden’s proposals do not go far enough.