According to experts, high earners in New York and California could expect combined tax rates of 62% at the federal and state levels under Democratic presidential candidate Joe Biden's tax plan.
While Americans earning less than $ 400,000 would, on average, receive tax cuts under Biden's Plan, the highest incomes would face double-digit increases in their official tax rates, according to impartial analysis. In California, New Jersey, and New York City, taxpayers earning more than $ 400,000 per year could expect combined state and local statutory income tax rates in excess of 60%.
In California, top earners could expect state and federal tax rates of up to 62.6% under the Biden Plan, according to calculations by Jared Walczak of the Tax Foundation. In New Jersey, the combined rates could only be more than 60%, while in New York state they could reach 58.2%. In New York City, home to most of the state's high earners, the combined city, state, and state income tax rate would be just over 62%.
Of course, few taxpayers pay the full statutory tax rates, which include no deductions, credits, compensations, loopholes, and lower tax rates for other sources of income. Although the highest statutory tax rate in the US is currently 37%, the effective tax rate (which taxpayers actually pay through their accountants) for top earners is 26.8% according to the Tax Foundation. The Biden campaign says that what matters to taxpayers and business is the effective tax rates, not the statutory tax rates.
Under Biden's plan, the effective tax rate for the top 1% would increase from 26.8% to 39.8%, according to the Tax Policy Center. That means top earners in California and New York City would pay effective state and federal tax rates of around 53% – compared to the roughly 40% they pay in effective tax rates today.
If the Democrats can win the Senate and pass laws that remove the $ 10,000 cap on state and local tax deductions, the combined state and local tax rates for top earners could be even lower.
However, the official combined tax rates of more than 60% for top earners would be the highest in more than 30 years and well above the Obama administration's rates. The main reasons for the increase in Biden's plan are to increase the upper marginal tax rate from 37% to 39.6% and the additional wage tax of 12.4% for those who earn more than $ 400,000 per year, split between employee and employee employer. Including other provisions in his plan, the highest federal tax rate under Waliden would be 49.338%, according to Walczak.
In addition to California's top rate of 13.3%, the top combined tax rate for top earners in California would be 62.64%. In New Jersey, with a top rate of 10.75% for those making more than $ 1 million, the highest combined rate would be 60.1%. In New York State, the combined rate would be 58.2%; in New York City, the combined rate would be 62%.
Walczak said if you factor in employer contributions to tax increases that are often passed on to employees, the combined rates would go up even further – to over 65% in California, 62.9% in New Jersey, and 64.7% in New York City. You could also jump higher if California and New York raise high-income taxes, which some lawmakers have proposed to fill billions of dollars in budget gaps.
"These rates would be the highest in about three and a half decades," said Walzcak, "and would be imposed on a broader tax base than before."