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If he wins? How Biden’s tax plan would change our tax bill.

The One Percent in America would pay more, through higher capital gains and income taxes.

Democratic presidential candidate and former Vice President Joe Biden speaks at a campaign event at UAW Region 1 headquarters on Sept. 9.
Democratic presidential candidate and former Vice President Joe Biden speaks at a campaign event at UAW Region 1 headquarters on Sept. 9.Read morePatrick Semansky / AP

Democratic presidential candidate Joe Biden’s tax plan could significantly change taxes — higher income tax rates, higher capital gains rates, fewer deductions, and an aggressive estate tax.

But his proposals would mostly affect the wealthy. In short, Biden’s aiming to tax the 1 Percent more heavily.

However, to get his tax plan passed if he is elected in November, Biden would also need Democratic control of the House and Senate.

Biden would raise the corporate tax rate to 28% from 21%, restore the top individual tax rate to 39.6% from 37%, tax capital gains as ordinary income and at death for very high earners, limit deductions for high earners, and subject wages above $400,000 to the Social Security payroll tax, according to the Committee for a Responsible Federal Budget. Here are looks at some specific plans.

Biden would scrap preferential treatment of capital gains and dividends for higher earners, and raise taxes on inheritance. Capital gains and dividends would be taxed as ordinary income, at a rate of 39.6% for individuals and couples earning more than $1 million.

Long-term capital gains are taxed currently at a top rate of 20% and earned income is taxed at a top rate of 37%.

Second, when one generation inherits from another, the cost basis of that asset “steps up” from the cost at the time of purchase to the cost at the time of transfer. That means heirs escape taxation. Biden would restore some taxes on inherited assets — though the campaign has said the plan would not apply for Americans earning less than $400,000.

A new Social Security “doughnut hole.” Under current law, the 12.4% Social Security employer and employee combined payroll tax rate applies to earnings up to an annual maximum ($137,700 in 2020).

Under Biden’s proposal, earnings between $137,700 and $400,000 would be exempt, creating a “doughnut hole” of nontaxable wages. Earnings above $400,000 would be subject to the 12.4% tax.

Repeal elements of the Tax Cuts and Jobs Act (TCJA) for high-income filers. The act lowered the top rate on ordinary income and introduced a 20% deduction on qualified business income.

For filers with more than $400,000 of taxable income, the Biden tax plan would restore the previous top rate of 39.6%.

In dollar terms, households in the top 1% of America would face an average tax increase of roughly $300,000 per year, compared with a $260 per year increase for those in the middle, according to the Tax Policy Center, affiliated with the Urban Institute and Brookings.

Biden’s plan has also been modeled by Penn Wharton Budget Model, based in Philadelphia, looking at revenues and the effect on GDP. That group estimated that the top 1% of incomes would pay about 80% of the tax changes. A copy of the full Biden tax plan is available at the Tax Policy Center website.

For those who don’t want to gamble on November’s results, “there are options where you can take action now and make final decisions later,” said Michael Gillen, head of Duane Morris’ tax accounting group.

There would be no tax on any inherited wealth up to $11.58 million for the rest of 2020.

Biden wants to lower that limit back to the pre-2016 value of about $5 million.

Move wealth to future generations by establishing a trust. In Pennsylvania, a trust can continue in perpetuity, Gillen said. “You can create a trust now that will protect your assets for future generations, yet will be flexible enough that it can be modified as necessary if circumstances change.

You can also sell assets to trusts or family members. “If Biden wins the election, and the exemption is set to go down [to $5 million], you can forgive the loans and use the exemption before you lose it. Alternatively, if President Trump is reelected and the exemption remains high, the loans can remain in place without using any of your exemption.

“Of course, we always suggest annual exclusion gifts, which allow you to transfer up to $15,000, or $30,000 per couple, to any individual free of gift tax,” Gillen said.

Vanguard fee changes

As yields continue to drop, Vanguard has said it will limit expenses — that is, waive fees — on Prime Money Market Fund. Prime Money Market’s yield has fallen to 0.02%, almost down to zero.

Yields on Vanguard’s money market funds have been falling sharply, along with many other money market funds. Vanguard’s Pennsylvania Money Market has been reporting a 0.01% yield for several weeks.

Fee waivers were widely expected to keep the rate of return above zero. Federated Hermes, another large money fund company, said June 26 that it reduced fees or payments on 16 funds and trusts “due to current market conditions,” according to Reuters.

Why the fee waiver? Yields are so low on money market funds that without a break, the returns might drop below zero.

The Federal Reserve set the target range for federal funds at 0.00% to 0.25%. Yields on money market mutual funds tend to follow short-term rates set by the Fed, although typically with a lag. That means following a Fed rate cut, yields on money market mutual funds trend lower.