{"id":10525,"date":"2020-10-01T13:31:03","date_gmt":"2020-10-01T18:31:03","guid":{"rendered":"http:\/\/blog.uwsp.edu\/cps\/?p=10525"},"modified":"2021-06-07T10:05:25","modified_gmt":"2021-06-07T15:05:25","slug":"the-election-and-economic-polices-biden-vs-trump","status":"publish","type":"post","link":"https:\/\/blog.uwsp.edu\/cps\/2020\/10\/01\/the-election-and-economic-polices-biden-vs-trump\/","title":{"rendered":"The Election and Economic Polices: Biden vs. Trump"},"content":{"rendered":"\n
\"The<\/figure>\n\n\n\n

Well, it\u2019s everybody\u2019s favorite time of the year \u2013 election time. The divisions in America have perhaps never been greater. This blog may not lessen those divisions, but the goal is simple \u2013 to help voters make an informed voting decision. Here\u2019s hoping that everyone votes, and that every vote gets counted. This blog will provide a summary comparison of the economic policies of Donald Trump and Joe Biden on four key issues: 1) corporate taxes, 2) individual taxes, 3) Social Security and 4) healthcare. Links to supporting websites and articles are provided at the end of this blog for greater information. <\/p>\n\n\n\n

Corporate Taxes<\/strong><\/h4>\n\n\n\n

Background<\/em><\/p>\n\n\n\n

Under both President Bush and\nPresident Obama, the statutory corporate tax rate was 35% and capital\nexpenditures (spending on property, plant, and equipment) were depreciated (the\ncost was a tax deduction that was allocated over a certain number of years).\nThe statutory tax rate is the legal rate that corporations pay on taxable<\/em>\nincome. Corporations also get deductions and credits, so not all income is\ntaxable income, and the tax rate that companies actually pay on taxable income\n(the effective tax rate) can be significantly less than the statutory rate.<\/p>\n\n\n\n

Trump<\/em><\/p>\n\n\n\n

The most significant changes from\nthe 2018 tax bill under President Trump impacted corporations. The significant\nbenefits to corporations included the following: a reduction in the statutory\ncorporate tax rate from 35% to 21%, 2) capital spending (spending on property,\nplant, and equipment) could be immediately expensed rather than depreciated,\nand 3) the taxation of repatriated foreign income (foreign income brought back\nto the U.S.) was significantly lowered. <\/p>\n\n\n\n

Here is what those changes meant.\nThe reduction from 35% to 21% in the statutory rate puts the rate at its lowest\nlevel since the 1930s (it was lowered to 35% under President Reagan with the\nTax Reform Act of 1986). Unlike the individual tax cuts, the corporate tax cut\nis permanent (no ending date, unless changed by law), The expensing of capital\nspending is another benefit. Rather than depreciating (allocating) the cost of\nproperty, plant, and equipment over a certain number of years as required\npreviously, companies could expense (take a full deduction for) the entire\namount beginning in 2018. In other words, an immediate tax benefit for the full\namount spent. The expensing of capital spending is allowed through 2022.\nFinally, the reduced taxation on foreign income is a major benefit for\ncompanies wishing to send foreign income back to the U.S.<\/p>\n\n\n\n

The statutory corporate tax rate was\nlowered from 35% to 21%, but the effective rate (the tax rate companies\nactually pay on their taxable income) can be significantly lowered through tax\ncredits and taxable income lowered through deductions. According to a study by\nthe Institute on Taxation and Economic Policy <\/em>(see link at end of blog),\nthe effective tax rate for the 379 profitable companies in the Fortune 500 was\n11.3% in 2018. A total of 91 of the Fortune 500 companies, including Amazon,\nIBM, and General Motors, paid no corporate taxes in 2018. <\/p>\n\n\n\n

Biden<\/em> <\/em><\/p>\n\n\n\n

Biden\u2019s plan features raising the\ncorporate tax rate to 28 percent and imposing a 15% minimum tax on a\ncorporation\u2019s book income. In some instances, corporations may have greater\ndeductions for tax purposes, thereby reducing their taxable income but showing\ngreater (book) income to investors. The minimum tax would provide a floor for\nthe effective tax rate. In addition, Biden\u2019s plan includes a minimum tax on all\nforeign earnings of United States companies located overseas and imposing a tax\npenalty on U.S. companies that shift jobs overseas that result in products\nbeing sold back to America.<\/p>\n\n\n\n

Individual Taxes<\/strong><\/h4>\n\n\n\n

Background<\/em><\/p>\n\n\n\n

The federal income tax structure is a progressive tax structure. As your taxable<\/em> income increases, you progress into higher tax brackets with higher tax rates. However, taxable income can be reduced by deductions and credits. There are currently 7 individual income tax brackets. Each tax bracket has a specified tax rate. As your taxable income increases and you progress to a higher income bracket, the tax rate that applies to that bracket will also increase. The rates apply to the income in a given bracket. Note \u2013 an important point is that everyone pays the same rate for taxable income in a given bracket. <\/p>\n\n\n\n

Under President Bush, there were 6\ntax brackets. Under President Obama, the number of tax brackets was expanded to\n7. The tax rates that applied to the tax brackets were the same under each\npresident, with one exception. The only thing that changed under President\nObama was the addition of a 39.6% top tax rate that applied to a new top tax\nbracket. The new bracket applied to taxable income over $400,000 for\nindividuals and $450,000 for couples. The 39.6% rate had been the top tax rate\nthat applied to the highest tax bracket under President Clinton. Relative to\nPresident Clinton, tax rates that applied to each tax bracket were lowered\nunder President Bush. The tax cuts implemented under President Bush were initially\nscheduled to end in 2010, which meant that tax rates would have reverted to the\nhigher rates that existed under President Clinton. However, Congress approved\nkeeping the rates in place under President Obama, the only exception being the\nincreased rate for the highest tax bracket. \n<\/p>\n\n\n\n

In addition to lowering tax rates by income bracket, the Bush Tax Cuts also lowered taxes on certain dividends (cash payments to shareholders) and long-term capital gains (gains on financial assets). Dividends were formerly taxed at an individual\u2019s ordinary tax rate (the ordinary tax rate is the tax rate that applies to your tax bracket); under President Bush the dividend tax rate was reduced to 15% for \u201cqualified\u201d dividends, basically dividends on stock that was held for a required minimum time period. The long-term capital gains tax rate was reduced from 20% to 15% (5% in tax brackets of 10% and 15%). These rates, implemented under President Bush, generally remained in place under President Obama. The long-term capital gains and qualified dividend tax rate was increased to 20% for taxpayers in the 39.6% marginal tax bracket and an additional net investment income tax of 3.8% was applied on the capital gains of high-income earners.  <\/p>\n\n\n\n

The standard deduction and\nexemption amount were relatively the same under President Obama relative to\nPresident Bush, with the amounts each year generally adjusted slightly by the\napproximate rate of inflation.<\/p>\n\n\n\n

Trump<\/em><\/p>\n\n\n\n

Beginning\nin 2018, tax law changed under the Trump administration. The new tax law kept\nthe seven tax brackets that existed under President Obama, with the bracket\namounts adjusted slightly. However, the tax rates that apply to each tax\nbracket were generally reduced by approximately 2-4%. This was very similar to\nwhat was implement in the tax changes under President Bush \u2013 the tax rates that\napplied to each bracket were generally reduced. Also similar to the tax law\nimplemented under President Bush, the changes implemented in 2018 are for a\nlimited period of time. The changes begin in 2018 and expire after 2025,\nunless extended by law. The standard deduction was approximately doubled and\nthe personal exemption (deductions for dependents) eliminated, resulting in\nfewer taxpayers itemizing deductions. The bottom line, The Tax Policy Center<\/em>\n(see link at end of blog) estimated that in 2018 the average tax reduction was\napproximately $1,600, with taxpayers in the top 5% of the income distribution\nreceiving the greatest benefit.<\/p>\n\n\n\n

Long-term capital gains and\ndividends are taxed under the 2018 tax bill very similarly to what was in place\nunder President Obama, including the 3.8% additional investment tax on high\nearners. <\/p>\n\n\n\n

Biden<\/em><\/em><\/p>\n\n\n\n

Biden\u2019s plan would include raising\nindividual income taxes on those taxpayers making greater than $400,000. Taxes\nwould not be raised on those making less than $400,000. The top individual\nincome tax rate would be increased back to 39.6 percent, the top rate that had\nbeen in place under President Obama. The 2018 tax law lowered the top tax rate\nfrom 39.6 percent to the current 37.0 percent. Taxes on long-term capital gains\nand qualified dividends on income above $1 million would be at the ordinary (proposed)\nincome tax rate of 39.6 percent, rather than the current 20 percent.<\/p>\n\n\n\n

A variety of tax credits have been proposed under the Biden plan:<\/p>\n\n\n\n

  • Tax\ncredits would be increased for children and childcare. The Biden plan offers up\nto $8,000 in tax credits to help low-income and middle-class families pay for childcare.\nThe Child Tax Credit would be increased from the current $2,000 to $3,000 per\nchild for children ages 6 to 17 and $3,600 for children under 6. <\/li>
  • A\ntax credit of up to $15,000 would be available for first-time home buyers.<\/li>
  • Spending\non health insurance would be capped through tax credits. No family would spend\nmore than 8.5% of their income on health insurance due to expanding access to\nrefundable health premium tax credits. <\/li>
  • A\ntax credit would also be available for caring for an aging loved one.<\/li><\/ul>\n\n\n\n

    Social Security<\/strong><\/h4>\n\n\n\n

    Background<\/em><\/p>\n\n\n\n

    Social Security programs are primarily funded through payroll taxes. Since 1990, employees and their employers have each paid 6.2% (4.2% for employees in 2011 and 2012) of earnings for Social Security taxes; 1.45% of earnings for Medicare taxes. (Rates were slightly lower prior to 1990.) In sum, a total of 15.30% of an employee\u2019s earnings are subject to Social Security and Medicare taxes, with employee and employer each paying 7.65% of an employee\u2019s earnings. Social Security taxes are up to a salary limit of $137,700 in 2020. People who earn more than the taxable maximum do not pay Social Security taxes on that amount or have those earnings factored into their future Social Security payments. There is no wage limit for the Medicare tax. Beginning in 2013, workers pay an additional 0.9 percent Medicare tax on income exceeding certain thresholds: $200,000 for single taxpayers, $250,000 for married. <\/p>\n\n\n\n

    Current\npayments into Social Security are being dispersed to those receiving benefits\nnow \u2013 excess payments remain in Social Security trust funds. In\nother words, payments that you make into the Social Security system are NOT set\naside for you. Current payments go to current beneficiaries. If a shift occurs\nin the age distribution of the U.S. population (which it did), problems can\noccur with the system. <\/p>\n\n\n\n

    Each\nyear the Trustees of the Social Security and Medicare trust funds report on the\ncurrent and projected financial status of the programs. The 2020 report does\nNOT take into account the impact of Covid-19 on the economy nor the Trump\nadministration\u2019s current deferral of Social Security payroll taxes. According\nto the Trustees \u201cSocial Security and Medicare both face long-term financing\nshortfalls under currently scheduled benefits and financing.\u201d<\/strong><\/p>\n\n\n\n

    In 2020, Social Security\u2019s total cost is projected to exceed its total income in 2020 for the first time since 1982. Money is withdrawn from the trust funds when current payments into Social Security are less than disbursements. The demographic shifts and aging population in America have created strains in the financing of Social Security programs. Disbursements are expected to continue to exceed program income after 2020. The retirement and survivors benefits (OASI) trust fund is expected to remain solvent until 2034; the disability benefits (DI) trust fund is expected to remain solvent until 2065. There are two different trust funds relating to Medicare; one of those trust funds is projected to be depleted in 2026.<\/p>\n\n\n\n

    The financial strains on Social Security and Medicare mean that something will have to change \u2013 either benefits, the financing of programs, or both.<\/p>\n\n\n\n

    Trump<\/em><\/p>\n\n\n\n

    The Trump administration\u2019s\nproposed 2021 budget (see link at end of blog) included significant cuts to the\nSocial Security Disability Insurance (SSDI) program, as well as cuts to\nMedicare and Medicaid. Details for future funding and benefits for Social\nSecurity retirement have not been disclosed. <\/p>\n\n\n\n

    In August, the Trump administration\nannounced (through Executive Order) a four-month payroll tax deferral (6.2%)\nfrom September through December for certain eligible workers. It is\ntheoretically a deferral, not a permanent tax cut, so the payroll tax would be\n12.4% in the first four months of 2021 for employees participating in the tax\ndeferral. Any permanent reduction in the payroll tax rate would negatively\nimpact Social Security funding.<\/p>\n\n\n\n

    Biden<\/em><\/p>\n\n\n\n

    Currently,\nemployees and their employers each pay 6.2% of earnings for Social Security\ntaxes; 1.45% of earnings for Medicare taxes. Taxes are deducted for Social\nSecurity up to a salary limit of $137,700 in 2020; there is no salary\nlimit for deducting Medicare taxes. The Biden plan features increasing the\nfinancing of Social Security through implementing\nthe 12.4 percent payroll taxes on wages above $400,000, which would be\nevenly split by the employee and the employer.<\/p>\n\n\n\n

    Biden is also proposing offering\nAmericans that have worked for at least 30 years a retirement benefit that is\nat least 125 percent of the federal poverty level.<\/p>\n\n\n\n

    Healthcare<\/strong><\/h4>\n\n\n\n

    The Affordable Care Act (\u201cObamacare\u201d) was passed in 2010 in an effort to provide a starting point for national health care. The objective of the Act was to make buying health coverage easier and more affordable, with insurance companies competing for business through state-based American Health Benefit Exchanges. Through the exchanges, individuals can purchase coverage, with premium and cost-sharing credits available to individuals\/families (based on income); small businesses may also be able to purchase coverage. The number of health insurance firms competing for business varied by state. Insurance plans were required to cover \u201cEssential Health Benefits,\u2019 including certain services such as doctors\u2019 services, inpatient or outpatient hospital care, prescription drugs, pregnancy, childbirth, and mental health. Most people were required to have health insurance or be charged a fine by the federal government.<\/p>\n\n\n\n

    Healthcare coverage and costs\nremain a concern for many Americans. From the Kaiser Family Foundation<\/em> (see\nlink at end of blog) based on data collected from 2019 surveys:<\/p>\n\n\n\n