What the Biden Administration may mean for your money

Taxes

Biden has proposed sweeping changes to the tax code, including returning the top income tax rate to 39.6% from its current level of 37%. He has pledged to not raise taxes on anyone making less than $400,000.

Yet, he wants to raise taxes on long-term capital gains from investments and qualified dividends. Taxpayers with income above $1 million would be subject to a capital gains tax rate of 39.6%, instead of the current 20%.

Meanwhile, the corporate tax rate would jump to 28% from 21% and there would be a 15% minimum tax on book income for corporations that have profits of $100 million or higher.

Bank of America Securities estimates that Biden's tax plan would reduce S&P 500 earnings by 7%, mostly because of the higher corporate taxes.

In addition, the wealthy will face a higher estate tax bill. Currently, under the Tax Cuts and Jobs Act, individuals can gift or make a bequest of $11.7 million, or $23.4 million for a married couple, before facing the 40% estate or gift tax.

That provision expires at the end of 2025, reverting back to about $5 million per individual. However, Biden would cut that to $3.5 million and limit individual gift transfers to $1 million, according to the Tax Policy Center. Estate and gift taxes could also rise to 45%, the center’s analysis found.

Retirement savings

On the campaign trail, Biden called for equalizing benefits of retirement plans.

Currently, workers contribute to a traditional 401(k) plan on a pre-tax basis, which helps lower their taxable income. The size of the tax savings varies, with those in a higher tax bracket seeing a bigger reduction in their tax bill.

Biden proposes replacing that with a credit of approximately 26% of the amount contributed, according to an analysis by the Tax Policy Center.

Depending on how it is structured, lower-income workers may be encouraged to save more money and may see a higher tax savings when they file returns, analysts have said. 

Social Security

Benefit increases are a part of the president’s plan to overhaul Social Security.

Eligible workers would get a guaranteed minimum benefit equal to at least 125% of the federal poverty level. Those who have received benefits for at least 20 years would receive a 5% increase. Widows and widowers could get approximately 20% more a month.

He plans to pay for the changes and extend the program’s solvency by hiking Social Security payroll taxes to 12.4% on those making $400,000 and up. In April, the Social Security Administration projected its funds could run out in 2035. 

Covid relief package

Before taking office, Biden outlined a plan to help Americans recover from the coronavirus pandemic, which included:

• Increase stimulus checks to $2,000
• Boost weekly unemployment benefits by $400
• Raise the federal minimum wage to $15 per hour, up from $7.25 per hour
• $30 billion in rental assistance and another $5 billion help those experiencing or at risk of homelessness find housing
• Boost child tax credit to $3,000 for qualifying children aged 17 and under, and $3,600 for kids under age 6. It would be fully refundable and is for one year.
• Increase the child and dependent care tax credit to a maximum of $4,000 for one child under age 13, or $8,000 for two or more children. Families earning between $125,000 and $400,000 in income will receive a partial credit. It is for one year and is refundable.
• Create a $25 billion emergency fund to help child-care centers stay open; and expand child-care assistance by $15 billion to help subsidize child care for low-income families.

Thought bubble: How raising the minimum wage helps, is beyond me. In most economic scenarios and outcomes, raising the minimum wage hurts unskilled, lower income workers, which Covid has affected the most. Most wages are above the minimum anyway. And if you add up the cost of direct Covid relief, it's less than $1 Trillion. Where's the other $1 Trillion going? 

Ban on evictions

In an executive order on Wednesday, Biden extended the federal ban on evictions through March 2021. The existing ban, which has helped millions of Americans struggling during the pandemic, was set to expire at the end of January. 

Student loans

The president also signed an executive order to extend the payment pause and interest waiver for federal student loans through at least September 2021.

Before the inauguration, Biden also said he would call on Congress to cancel $10,000 in student debt for all borrowers, but it was not part of his initial Covid relief plan.