Joe Biden’s “American Families Plan” is a great idea in theory. The plan includes universal prekindergarten, a federal paid leave program, efforts to make child care more affordable, free community college for all and tax credits meant to fight poverty. But like all good plans, there’s a substantial cost involved and that will fall on the high earners, including high earning U.S. expats. Should you be worried? Not unless you earn more than $1 million annually. An increased scrutiny of your filed returns and higher audit rates are on the way, wherever you reside. For the “top 0.1%”, offshore tax avoidance may become a thing of the past.
Biden’s proposed budget for The Plan
The American Families Plan, which follows his $2.3 trillion infrastructure package, is expected to cost at least $1.5 trillion, and it has to come from somewhere, and so it will be collected by raising the top marginal income tax rate for wealthy Americans to 39.6% from 37% and raising capital gains tax rates for those who earn more than $1 million a year, which would combine to raise hundreds of billions of dollars. Biden will also seek to raise the tax rate on income that people earning more than $1 million per year receive through stock dividends.
A closer look at high earners
Beefing up the I.R.S audits of high earners is set to raise $700 billion over the course of a decade. Individuals who earn more than $400,000 a year would face a higher likelihood of a tax audit, regardless of how much income they report on their tax forms, and the administration hopes that it will make it harder for high-earning Americans, at home or abroad, to evade or avoid taxes. More I.R.S. funding is, of course, something that Democrats have been pushing for, for years, but additional enforcement spending, according to Conservatives, may result in a backlash from high-earning small business owners, who may now feel especially targeted.
Loopholes to close
The richest will likely lose their current tax loopholes. Often the super wealthy can avoid paying as much tax as those on lesser earnings. That’s because they aren’t primarily earning money through their labor. Instead, they’re living off investments, and therefore get to pay the lower rate on capital gains and dividends of 23.8%. Now all investments will be more closely examined, and this could spell the end of loopholes and advantages for the “0.1%”, and it will transform how the very wealthy manage their portfolios and pass on their assets to future generations.