Wealthy Americans living in New York, New Jersey and California could face one of the steepest tax rates in decades if Democratic presidential nominee Joe Biden wins the November election.
Under Biden’s tax proposal, the highest-earners in three states — California, Hawaii and New Jersey — and New York City could see their state and federal tax rate climb above 60%, according to a new analysis published Tuesday by the Tax Foundation.
In California, individuals earning more than $400,000 could face a state and federal tax rate as high as 62.6% under a Biden presidency, the analysis showed. In New Jersey, the combined rates could be a little more than 60%, while in New York City, the combined city, state and federal income tax rate would be roughly 62%, the highest in about 30 years.
“Only a small percentage of taxpayers will see any of their income exposed to these combined top marginal rates, and effective rates are lower than marginal rates, which are the rates imposed on the last dollar of a taxpayer’s income,” the analysis, authored by Jared Walczak, said.
Individuals earning more than $400,000 represent about 1.8% of the country’s population, according to the Penn Wharton Budget Model. The majority of Americans could expect to see taxes reduced under a Biden presidency, according to the Tax Foundation.
The analysis reflects the “statutory rates,” which few people pay, thanks to deductions, credits, offsets, loopholes and low tax rates on some sources of income. Even though the top U.S. statutory tax rate is 37%, the effective rate for top earners is about 26.8%, according to the Tax Foundation. Biden has pledged to raise the effective tax rate for the top 1% from 26.8% to 39.8%.
The former vice president has unveiled a multitrillion-dollar agenda that would be funded in large part by higher taxes on wealthy U.S. households – which he describes as anyone earning more than $400,000 annually – and corporations. That includes higher income tax rates, an expansion of the payroll tax for Social Security, new tax credits and fewer deductions.
Biden has promised to roll back other changes made by Trump in the 2017 Tax Cuts and Jobs Act, including restoring the top individual income tax bracket to 39.6% from 37% for those earning more than $400,000 annually.
That would result in an average tax increase of nearly $300,000 for households in the top 1% of the country (those earning more than $837,000), compared with a $260 per year increase for those in the middle (those earning between $52,000 and $93,000), according to the Tax Policy Center.
Biden has also said he will subject wages above $400,000 to the 12.4% payroll tax, creating a so-called “donut hole” for earnings between $137,700 and $400,000, which would be exempt.