Inflation is a pressing issue for all U.S. citizens, but retirees are more likely to bear the brunt. If Joe Biden’s tax hike proposal is greenlit, the financial struggle for citizens, particularly retirees, could intensify. Here’s a breakdown of how Biden’s proposed tax hikes could impact your savings.
It’s no secret that saving for retirement these days is a lot harder, thanks to inflation and the rising costs of living. The Schroders 2024 US Retirement Survey revealed that less than half of Americans (44%) believed they had saved enough for retirement, and 32% are convinced they haven’t saved enough. In fact, according to the survey, the number one concern American retirees have is the impact of inflation on the value of their assets. Out of the survey, 89% of retirees worried about this, and if Biden gets his way, this number will jump up and potentially turn the American retirement dream into a nightmare.
Biden’s proposed tax for the 2024 fiscal year sees an increase in tax rates for corporate, individual and capital gains income, which can result in negative returns thanks to inflation. These ambitious tax hikes will raise the tax to the highest rate the country has seen in 111 years, specifically his proposal to raise capital gains to 45%. Current capital gains are taxed at rates of 0%, 15% and 20%, making Biden’s proposed tax hike more than double and a real cause for concern. According to Biden, this proposed hike is supposedly intended to target “greedy billionaires,” but in reality, this tax is what 12.5 million middle-class Americans pay on their retirement savings. The trouble with inflation and capital gains tax is that you’re taxed on the paper gain when, in reality, you’ve lost money because the dollar has lost purchasing money.
So, what do these tax hikes look like in real life? The Heritage Foundation did some calculations based on the White House’s proposed federal budget, which included a staggering $4.9 trillion in future tax hikes and found that these tax hikes would mean an additional $36,000 in taxes per family. This will affect many families in the country’s ability to put money away for retirement and create an emergency savings fund while paying monthly expenses on top of the rising cost of living. Individual income tax is also not exempt from the proposal to increase the highest income tax bracket to 39.6% compared to the current 37%.
Biden’s proposal to increase corporate tax to 28%, currently at a low 21% because of the Tax Cuts and Jobs Act (TCJA), will also affect average Americans’ attempts to save and retire. According to the Heritage Foundation, higher corporate tax will result in lower wages, higher prices for things like groceries and lower rates of return for savings.
In addition to negative returns in May, Biden’s proposed tax rate hikes could result in the loss of thousands of jobs. According to the findings provided by the Tax Foundation, these tax hikes could have a dire effect on the U.S. economy. The data reveals that economic output would be reduced by 2.2%, kill around 788,000 full-time jobs and reduce wages by 1.6%. The report read that Biden’s policies would “make the tax code more complicated, unstable, and anti-growth, while also expanding the amount of spending in the tax code for a variety of policy goals not related to revenue collection.”
For now, it’s not all doom and gloom as the proposal will need to grow support from members of Congress and with a Republican majority rule in the House, this tax policy has a high chance of rejection.
