Joe Biden's tax plan would allow Americans who earn less than $400,000 to enjoy tax cuts while higher earners have double-digit increases.
Experts point out that high earners in New York, New Jersey, and California could face combined federal and state tax rates of more than 60%.
Data from Jared Walczak of the Tax Foundation suggest that top earners in California could adhere to a state and federal tax rate of as much as 62.6% under Biden's tax plan.
Meanwhile, New Jersey's combined rates could be about more than 60%, while New York state could reach 58.2%. In New York City, which is home to most of the state’s high earners, the combined city, state, and federal income tax rate would be above 62%.
The full statutory rates do not cover credits, deductions, loopholes, offsets, and lower tax rates on other sources of income.
According to the Tax Foundation, even if the top US statutory tax rate is at 37%, the effective rate for high earners is 26.8%. The Biden campaign explained that effective rates, not the statutory rates, are what matters to taxpayers and the economy.
The Tax Policy Center reported that the effective tax rate for the top 1% under Biden's plan would rise from 26.8% to 39.8%.
High earners
This suggests that high earners in New York City and California would get effective state and federal tax rates of about 53%, compared with the 40% they pay in effective rates.
Analysts from CNBC point out that the combined state and local tax rates for high earners could be reduced if the Democrats win the Senate and can submit a law eliminating the $10,000 cap on state and local tax deductions.
Under Biden's tax plan, the factors contributing to the increase are the hike in the top marginal tax rate, to 39.6% from 37%, and the added payroll tax of 12.4% for those with earnings of over $400,000 a year.
Walczak explained that if one includes the contributions to the tax increases by employers, the combined rates would swell more to over 65% in California, 62.9% in New Jersey and 64.7% in New York City.
“These rates would be the highest in about 3½ decades,” said Walczak, “and imposed on a broader tax base than was in place previously.”
50 Cent slams Biden's plan
50 Cent, the rapper-entrepreneur, announced on Instagram that he is supporting President Donald Trump for the US presidential elections after learning about Biden's tax plan.
"WHAT THE F*CK! (VOTE ForTRUMP) IM OUT, F*CK NEW YORK The KNICKS never win anyway," he wrote. "I don’t care Trump doesn’t like black people 62% are you out of ya f---ing mind."
Other wealthy citizens are rushing to revise their estate plans.
New York estate and tax planning lawyer Philip Michaels gained 15 high net worth clients aiming to revise estate plans in the last several months.
Joe Roberts, Senior Wealth Strategist, said that Rockefeller Capital Management, a financial advisory firm in New York, is conducting virtual events for customers while working with legal and tax advisers to address nuances of possible legislation.
Clients are anxious about a “quick turn and drastic departure” from the status quo, he added.
“It’s a lot of money to give away,” said Indianapolis estate planning lawyer John Olivieri. “People are struggling with, ‘Do I really want to give this away?’”
