To help pay for the plans, which could cost in the ballpark of $500 billion, based on estimates from Moody’s and the American Enterprise Institute, Biden wants to revive an Obama-era proposal to cap the value of itemized deductions at 28 percent for households earning more than $400,000. That’s estimated to raise some $300 billion.
The Obama administration pitched the cap every year with no luck, as charities, state and local governments and the housing industry pushed back. The cap wouldn’t bite as much with state and local tax deductions currently limited to $10,000 under the 2017 tax overhaul. But that limit comes off in 2026, and an all-Democratic Congress might seek immediate repeal. And charities, already chafing under the 2017 law’s higher standard deduction, would cry foul.
Biden’s plan to pay for the remainder by restoring a cap on business loss deductions in excess of $250,000, or $500,000 for married couples — raising as much as $250 billion — probably has a better chance. Included in the 2017 law as an offset, the cap was removed for 2018 through 2020 in the March coronavirus relief package. House Democrats have already passed legislation that would restore the cap permanently.
Putting the limit back would mean individuals with income from partnerships, S corporations and other “pass-through” structures can’t use excess business losses to offset other income, such as investment gains. That would affect mainly well-off households, according to the Joint Committee on Taxation, with 82 percent of the March tax break going to those earning more than $1 million.
Biden’s campaign also said to help offset the broader cost of his higher education proposals, such as free two-year community college tuition, he’d subject inherited assets to immediate capital gains tax at the deceased’s original purchase price, rather than deferred tax only on price appreciation since death. But the campaign also seems to want to use revenues from that plan — which has its own political challenges — to offset his health insurance expansion.
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