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White House, why Democrats use $ 400,000 as a threshold to tax the rich

President Joe Biden will address the 76th United Nations General Assembly in New York on September 21, 2021.

Eduardomnos-Pool / Getty Images

President Joe Biden and Democrats have announced plans to raise taxes on households with annual incomes above $ 400,000 and reduce or maintain taxes on households below the border.

But what is the importance of this tax system North Star?

At its core, this policy aims to raise more tax revenues from the wealthiest Americans. According to tax data and policy experts, income of at least $ 400,000 represents approximately the top 1% to 2% of households.

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But experts say it’s not entirely clear why they chose $ 400,000 as the line that distinguishes between rich and low-income earners, as the numbers don’t exactly match household tax statistics. rice field.

“This is an arbitrary threshold,” said Leonard Burman, who co-founded the Tax Policy Center, a joint project between the Brookings Institution and the Urban Institute. “It cannot be justified analytically.”

A spokesperson for the White House and Houseways and Means Commission did not return a request for comment.

Top 1% or 2%?

Extrapolated, near the top 2% of people earn at least $ 400,000, according to Garrett Watson, senior policy analyst at the Tax Foundation.

However, these numbers do not represent all American households. Only those who have filed a tax return are included.

Therefore, the data distorts the proportion, excluding millions of undeclared individuals, who are primarily low-income earners. Nearly 27 million people, such as the Tax Policy Center, did not declare in 2021. Estimate.. )

Including this large low-income group in the estimate, Watson said, income of $ 400,000 is likely to be close to the top 1% of all US households.

$ 400,000 Pledge

Tax pledges fixed at income levels are not new. For example, Democratic presidential candidates such as John Kerry and Barack Obama used $ 200,000 and $ 250,000 in revenue, respectively, as key elements of the tax system during the campaign, Watson said.

Biden’s higher $ 400,000 baseline may reflect growing income and wealth inequality in the United States, Watson added.

There may also be geographic legitimacy — the realization that while national standards make $ 400,000 a high income, it may not be too far in some major cities with high living costs.

“In Washington, New York, Los Angeles and San Francisco, it’s lower than in all other countries,” Berman said.

Earlier this year, White House Issued a $ 400,000 Guidance Tax PlanAims to use new tax revenues from the wealthy to fund investments to expand the US safety net and mitigate climate change.

The House Democratic Party last week announced a law that adheres to its policy objectives.For example, a single taxpayer with income of $ 400,000 or more (and a couple with income of $ 450,000 or more) See their highest marginal income tax rate rise From 37% to 39.6%; their highest tax rate Sale of highly valued stocks and other assets It rises from 20% to 25%.

The House bill states that in 2023, tax increases will be 1.6% for those with incomes of $ 500,000 to $ 1 million and 10.6% for high-income earners. Estimate From a joint committee on taxation, a nonpartisan tax scorekeeper in Congress. Estimates suggest that low-income and middle-income earners will either receive a net tax cut or the tax will level off.

The Senate Democratic Party has not yet announced a tax bill.

White House, why Democrats use $ 400,000 as a threshold to tax the rich

Source link White House, why Democrats use $ 400,000 as a threshold to tax the rich

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