Joe Biden’s plan would make income tax highest rate in developed world

President Biden’s Build Back Better agenda would hike the average top tax rate on personal income in the United States to the highest level in the developed world, according to an analysis by the Tax Foundation.

The $1.75 trillion proposal currently being considered by the House of Representatives would see the average top personal income tax rate in the US rise to a staggering 57.4 per cent, according to analysis. This is the highest level in the 38-member Organisation for Economic Co-operation and Development.

That’s up from the US’ current nationwide average top tax rate of 42.9 percent, which lands squarely in the middle when compared with the other OECD countries, according to the Tax Foundation, a Washington, DC-based think tank.

The new rate under Biden’s proposal would push the US top tax rate even higher than Japan’s notoriously cumbersome 55.9 percent average top income tax.

A graph of OECD tax rates.
Biden’s Build Back Better top tax rate would overtake Japan, Denmark, and France– currently the three countries with the highest tax rates in the OECD.

According to the analysis, the top rate of tax in a few blue states such as New York, California, and New Jersey would be even higher that the nationwide average of 66.2 percent 64.7 percent, and 63.2 percentage, respectively.

But under Biden’s plan, even residents of low-tax states like Wyoming, Washington and Texas will still face a top income tax rate of at least 51.4 percent due to the federal levy, the analysis shows.

According to analysts at the Tax Foundation, there are several factors that would make the average top income tax higher.

First, under current law, the top marginal tax rate on ordinary income is scheduled to increase from 37 percent to 39.6 percent starting in 2026, according to the Tax Foundation.

The US has a marginal income tax rate. This means that earnings above the threshold (which is over half a billion dollars per household) are exempt from tax.

Biden speaking at a press conference.
Analysis shows that low-tax states like Wyoming and Texas will still face a top income tax rate of at least 51.4 percent under President Biden’s plan.
AFP via Getty Images

According to the analysis, the wealthy households in the US would also be subject to a 5 % surcharge on modified adjusted Gross Income (MAGI) above $10,000,000, and a 3 % charge on MAGI over $25 million.

The plan would also eliminate provisions that allow wealthy taxpayers to avoid the Medicare surtax of 3.8 percent on their earnings. It would strengthen a net investment income tax for anyone who earns more than $400,000 per year.

Overall, these factors would push the top marginal tax rate on personal income at the federal level to 51.4 percent, according to the Tax Foundation, and that’s before state income tax.

It’s still unclear if the contentious cap on state and local tax deduction will be lifted in the Build Back Better plan, but if it is, then the average top marginal income tax rate would fall slightly to 54 percent, according to the foundation.

A map fo tax rates across US states.
Even low-tax countries would be subject to major rate hikes under Build Back better

“As policymakers explore options to raise revenue, they should keep in mind how the US compares to other countries and what the economic effects might be,” the analysis said.

“Raising the top marginal tax rate on ordinary income to the highest in the OECD will damage US competitiveness. It will also reduce incentives to work, save, invest, and innovate, with broad implications for the U.S. economy.”

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