All eyes are on the Georgia Senate run-offs races to be decided on January 5, 2021.
The stakes couldn’t be higher, especially for those considering their pocket books, their small businesses, and their financial futures.
Georgia should be on the mind of every American taxpayer–especially every small business owner.
President-elect Joe Biden plans massive tax hikes that could hit nearly every American’s bank account. Small businesses, in particular, could get socked with much higher taxes.
But to enact his ambitious money-grab, Biden needs Democrats to win both of the Senate seats in the upcoming Georgia run-0ff. That would be enough to evenly divide the Senate, giving a Vice President Kamala Harris the ability to swing control of the Senate to the Democrats and cast the deciding vote on issues that are split along party lines like, for example, tax hikes.
Here are the tax hikes that Biden and Vice President Kamala Harris promised to implement as one of their top priorities once in office:
- End the 20 percent deduction for small business incomes above $400,000.
- Hike the corporate tax rate from 21 percent to 28 percent.
- Households could face higher utility bills as power and water providers pass on the cost of the higher taxes.
- Raise the top individual income rate back to 39.6 percent from 37 percent.
- Impose the 12.4 percent payroll taxes on earned income above $400,000.
- Reviving the Obamacare individual mandate tax
The Biden plan would raise taxes on businesses and individuals by between $2 trillion and $3 trillion over a decade, according to recent estimates by the Tax Policy Center and the American Enterprise Institute. According to the Tax Foundation, Biden’s plan would be the biggest tax increase since the late 1960s when the country was struggling to pay for the Vietnam War and Lyndon B. Johnson’s Great Society welfare programs.
In other words, if the Democrats succeed in the Georgia Senate races, the country could face a blue tidal wave of tax hikes.
Higher Household Utility Bills
President-elect often claims that he only wants to raise taxes on high-income households and corporations but nearly every American family could pay more if his tax hikes become law. That’s because utilities that supply water, natural gas, and electricity to American homes are legally permitted to pass on the cost of higher tax bills to their customers. So if Biden gets to hike corporate taxes, that could translate directly into larger bills for power and water.
“Any change in tax law would mean that the amount of money utilities collect goes up,” John Bartlett, president of Reaves Asset Management, told CNN Business.
In the longer run, Biden’s attempt to push a radical green energy plan onto the country could raise household utility bills even further. But unfortunately, Americans would not have to wait for a Green New Deal to start paying more for energy and water. The corporate tax hike Biden has planned could hike the bills almost immediately.
A Huge Tax Hike on Small Business
Biden does not just plan on hiking taxes for corporations. He also plans to phase out the Qualified Business Income Deduction for incomes above $400,000. That could mean much higher taxes for many small businesses.
Imagine a landscaping business with $1.2 million in gross revenue and $400,000 of wage expenses, giving the owner $800,000 of net income. Many small businesses of this sort are sole-proprietorship pass-through entities, meaning the income of the business gets taxed as the personal income of the owner.
Under current law, the owner of the business gets a deduction equal to the lessor of a) 50 percent of the wages paid or b) 20 percent of his net income. Our landscaper would get the 20 percent deduction in our example, reducing taxable income from $800,000 to $640,000.
Biden plans to eliminate the deduction for incomes that high. So taxable income remains up at $800,000.
On $640,000 of taxable income, the landscaper would pay income tax of around $200,900 with the top tax rate at 37 percent. Biden’s tax plan raises both the amount of income taxes and imposes higher top rate, creating a tax bill of around $273,000—a 36.5 percent tax hike on our landscaper.
A Social Security Payroll Tax Hike
Biden would also hike payroll taxes on incomes in excess of $400,000—another blow to our hypothetical landscaper.
Under current law, the Social Security payroll tax phases out after $142,800 in 2021. Medicare does not phase out under current law, it staggers up from 2.9 percent on the first $200,000 of income to 3.8 percent on income above that level.
Biden would have the 12.9 percent Social Security tax kick back in at $400,000, although his plan calls for an income tax deduction for 50 percent of the increase. This translates into a payroll tax hike from around $46,000 under current law to close to $86,000 after Biden’s tax hike.
Combined with the higher taxes on small businesses, the landscaper would be paying nearly 45 percent of his income in taxes.
Corporate Tax Hikes Get Passed on To Workers and Shareholders
Biden has been quite open about his plan to raise taxes on corporations. But corporate tax hikes indirectly hit households of all income levels because the burden of the tax is borne by workers and shareholders. Anyone who owns stock could see lower returns and likely lower dividend income. Workers could feel downward pressure on wages as the government takes a bigger share of corporate profits.
The Return of the Obamacare Individual Mandate Tax
One of the major accomplishments of the Trump administration was the repeal of the penalty attached to the individual mandate to buy health insurance imposed by Obamacare. Biden has promised to restore the penalty—which legally constitutes a tax on being uninsured.
Higher Death and Gift Taxes
Biden wants to expand the estate and gift tax by reducing the exemption amount to $3.5 million and increasing the top rate for the estate tax to 45 percent. That means that owners of family businesses, including farmers, would face higher taxes when they try to pass them on to the next generation.
A ‘Slow Joe’ Economy
The likely effect of all these tax hikes will be to slow the economy—although no one can say precisely by how much. Our hypothetical landscaper might decide not to invest in expanding the business since he earns so much less after-taxes. Spread that over the entire country and you can see how taxes drag down growth.
Joe Biden’s economy may come to be known as the ‘Slow Joe’ era.
Of course, if Republicans hold the Senate by winning in George’s runoff, the economy might be rescued from the undertow of Biden’s tax hikes.