Biden’s Plan and its Impact Here in Princeton

The Biden administration has proposed an aggressive stimulus plan to help the country recover from the coronavirus crisis. For us here in Princeton, that could provide some much-needed relief, which will, of course, also come at a cost.

On the upside, Biden’s stimulus proposal includes several points that would particularly benefit our town.

For starters, there’s a second round of Paycheck Protection Program (PPP) loans for the hardest-hit small businesses, including set-asides to support very small businesses with 10 or fewer employees and non-profits as well as more money for community financial institutions. It also expands PPP eligibility for our hospitals, newspapers and Chamber of Commerce. It even allows for small businesses in the restaurant and hospitality industries to receive larger awards.

Princeton has over 1,500 small businesses and about 120 storefronts, including many long-standing retailers, which has always been what makes this town special.

“Like many communities it’s been very difficult because they’ve lost their foot traffic, and in Princeton, in particular, the student foot traffic,” said John Goedecke, President of the Princeton Mercer Regional Chamber of Commerce Foundation and the Princeton Resiliency Fund committee.

The stimulus plan will also provide aid so our schools can fully reopen and the means to increase COVID testing and vaccinations – all of which will help our community get back on its feet.

“Without this aid there could be wider future service reductions and/or increased state/local taxes to make up for these losses,” said Mark Freda, Mayor of Princeton.

“Yes, at some point all of this will need to be paid for; but getting a strong economy in place, that is strong for all income levels will help pay for all of this.”

Naturally, the Federal government would have to raise taxes to pay for its stimulus program and that would hit Princeton residents particularly hard – especially our wealthiest taxpayers.

The tax rate in New Jersey is already among the highest nationwide, with the highest marginal tax rate of 10.75% on income in excess of $1 million, regardless of filing status.

The Federal tax rates could head even higher if the President’s plans are approved.

Here’s a look of the some of the major moves potentially in store:

• Increasing the top individual income tax rate to 39.6%. That’s up from the top marginal individual income tax rate of 37% set by The Tax Cuts and Jobs Act.
• Extending the 12.4% portion of the Social Security tax to earnings over $400,000. Under current law, only wages up to $142,800 are subject to this tax.
• Raising the capital gains and qualified dividend rate to 43.4% (including the Obamacare surcharge) for taxpayers with more than $1 million in income. Right now, wealthy investors are subject to a top rate of 23.8% on long-term capital gains and qualified dividends.
• Eliminating the step-up in basis. Today, heirs receive assets with a basis that is stepped up to the date of death values, which means they can immediately sell inherited assets with little to no income tax consequence. Biden’s proposal would tax unrealized appreciation, either as a capital gain taxed imposed at death, or carryover basis to heirs.
• Lowering the amount wealthy families can transfer free of the estate and gift tax.The Tax Cuts and Jobs Act allowed individuals to transfer up to $11.7 million without facing the gift or estate tax. Biden’s proposal calls for lowering this limit to $3.5 million per individual in bequeaths and $1 million in gifts. Biden said he would also raise the estate tax to 45% and apply it to more estates.
• Raising corporate tax rates.The corporate tax rate is currently 21%, but Biden’s proposal calls for increasing it to 28% – and he would phase out the 20% pass-through deduction for wealthy business owners.

In a nutshell, Biden’s tax plan would raise taxes for the wealthiest Americans, especially those making more than $400,000 a year. He would subject more of their earnings to Social Security taxes, repeal cuts to top income-tax rates, reduce the value of tax deductions and increase taxes on inherited assets and investment income.

But there are a few breaks in there as well. The administration would temporarily expand the child tax credit and make it fully refundable, as well as the child and dependent care credit. First-time homebuyers would also get a refundable tax credit. However, these credits would be more beneficial to lower and middle-income earners.

Still up for debate is whether the federal state and local tax deduction could be revived. State and local taxes (also known as SALT) include state income and sales tax, property and real estate taxes. A repeal of the $10,000 SALT cap would clearly benefit all taxpayers in Princeton because of the high New Jersey income and real estate tax rates.

Of course, it’s unclear whether Biden can push any of his tax agenda through a divided senate.

While there is plenty of momentum in the president’s first 100 days, Congress must also prioritize vaccine distribution and an impeachment trial along with the next comprehensive relief package.