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DWASARI: Biden's tax plan is what we need, contrary to what 50 Cent thinks

Rapper 50 Cent claims that former Vice President Joe Biden's tax plan is not worth voting for. For most Americans, and even the rich, that is not the case. – Photo by Wikimedia

"(Hey, times is hard man) I know, don't remind me / If I catch another case I'mma kill Giuliani," said rapper 50 Cent, referring to former New York City mayor and President Donald J. Trump's current attorney Rudy Giuliani on his song "Corner Bodega."

Fast forward over a decade since that song, and we have an endorsement by 50 Cent for Trump on Twitter over former Vice President Joe Biden's overall tax rates for New York City. While 50 Cent draws the needed attention toward each campaign's tax plans, his focus is misguided, and the reaction is out of proportion.

Biden has placed several tax laws to increase the percentage of income paid for every dollar greater than $400,000. The most unaddressed part of the Biden tax plan is whether the income threshold is based on household or individual income earners. Since Biden is looking to counter Trump's tax cuts in the Tax Cut and Jobs Act (TCJA), I am assuming it is likely based on individual income.

Some opponents of his tax plan say those who earn $400,000 and more must be taxed much higher simply because they are rich. While marginal tax rates based on income bracket make sense, I believe there should be a limit on the extent of the tax rate because these Americans have worked hard to earn their money.

At the same time, supporters of all tax cuts have to understand that income inequality in this country is growing at alarming rates and has continued to grow since former President Ronald Reagan's administration.

To evaluate income inequality, economists use a figure called the Gini coefficient. In 2019, the United States had the 7th highest Gini coefficient out of 40 countries, barely edging out Bulgaria – a country considered the most impoverished nation in the European Union – and Turkey – a country that made its 15-year president a dictator.

With the massive tax cuts Trump has given the rich and the irreparable effect the coronavirus disease (COVID-19) pandemic had on lower- and middle-class families, that figure is trending upward. Still, it raises the understandable question of whether the 60 percent statutory tax rate is justified.

When presidents release their tax plans, they release statutory rates (i.e., Biden's 60 percent plus the tax rate in New Jersey, California, Hawaii and New York City). These rates are decreased as everyone utilizes the different legal loopholes that provide tax benefits and deductions before they file their taxes. The new decreased rates are called effective rates, which have been mostly declining since World War II and have been sharply cut by the TCJA.

In 2018, it was reported that the effective corporate tax rates (meaning the tax rates after deductions and loopholes) were half of the initial statutory ones. Currently, the average effective income tax rates for the top one percent are approximately 27 percent, approximately a 10 percent decrease from the federal statutory income tax rates at 37 percent.

The rich have access to too many loopholes, and one way to counter it is through Biden's tax plan.

While Biden makes loopholes harder for wealthy Americans, he also offsets his stringent policies by removing the $10,000 cap on SALT deductions and providing extra outlets to tax benefits such as the Made in America tax credit. Separate from loopholes and tax increases, 6.2 percent of the tax increase is based on a Social Security tax, which may never pass even through a Democratic Congress.

An answer to 50 Cent's and other Americans' fears: The rich will not be paying more than 60 percent on every dollar earned greater than $400,000. There will be several ways – like in the past – to gain tax benefits that will significantly decrease that figure and indicates no reason to panic.

Although I have been defending the wealth tax hike Biden proposes, I am traditionally against them. I supported the TCJA when Trump and Congress passed it but was drawn back by the aftereffects. Tax cuts will always benefit the rich the most, and tax increases will always hurt the rich the most, which usually is not where I evaluate a tax policy. It also is not why I am not a fan of the tax cuts.

I look at the effect on the middle and lower class and minority communities. These have shown poor results.

The TCJA has minimally helped earners outside of the top 20 percent, with the lowest quintile only experiencing a 0.4 percent increase in after-tax income versus a 2.9 percent increase in the highest quintile. Although taxes are proportionally lower for the poor, the effects of the TCJA add little money to their pockets and take funding away from government programs that aid their unsustainable income.

Looking at the findings I listed, some may question the statistics since the tax cuts have provided $5000 on average to all households and allowed for an 8.9 percent increase in the lowest earners' wage rate. These statistics are deceptive.

When talking about the general population, stray away from tax cut data based on the average (mean) effect it had on the people and lean toward the median. The country's top earners heavily skew these statistics, which poorly reflects a tax policy's impact. The latter statistic – emphasized in a tweet by Ivanka Trump – is based on nominal rates and not real rates.

The nominal rates are not adjusted for inflation, which correlates with an increased cost of living. While Trump may have thought she was sneaky by highlighting a headline-level statistic, this should emphasize the notion that the real wage rate increase is significantly lower and nowhere near where it should be.

As mentioned before, I am disappointed in the impact it had on the lower and middle class and worried about the disproportionate positive effects it had on white Americans. Before I make my case for why the TCJA rarely helps out Black and Latinx Americans, I want to mention that I am not accusing Trump of being a racist or saying he has not done anything for the Black community.

From opportunity zones to record-setting historically Black colleges and universities funding, I believe Trump has helped them out, but the effects of his tax cuts have hurt them. Out of the $275 billion, white households received $218 billion (80 percent) of the tax cuts when they account for only 61.16 percent of the population.

It is proven that white families are more likely to be affluent than Black and Latinx families, but the numbers even within the top one percent show racial disparities. White households receive an average tax cut of $52,400 a year in the top one percent, while Black and Latinx households in the same income bracket receive tax cuts worth $19,290 and $19,850, respectively.

Even though it was likely unintended, the tax cuts represent a systemically racist America and a disproportionately positive effect for white Americans.

These changes must be reversed and reevaluated so that the low and middle class can see significant tax cuts while the rich can have their share of effective tax rates increased. Consequently, I believe Biden's plan captures what needs to be done for Americans amid unforeseen circumstances where a global pandemic has knocked down our economy.

With my personal opinion and list of findings, I hope this helps you decide whose tax policy you support. Unlike 50 Cent, I hope you do not base your vote entirely on taxes. This election is more important than ever with the deadly effects of the COVID-19 pandemic, the divide in our country due to human rights tensions and a struggling economy.

Making those remarks, I urge you not to vote for a candidate you only agree with on tax policies, but make sure it has the right influence on your decision.

Akhil Dwasari is a Rutgers Business School first-year majoring in finance and minoring in political science. His column, "Cut the Bull," runs on alternate Wednesdays. 

*Columns, cartoons and letters do not necessarily reflect the views of the Targum Publishing Company or its staff.

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