Last month, President Biden announced the American Families Plan (AFP) proposal, featuring major investments in K-12 education, child care, higher education, health care, and paid leave, as well as extended tax cuts for families and workers with children.
The AFP also includes revenue-raising proposals that would affect only very high-income taxpayers. And while the benefits of the AFP would be broadly shared, these tax increases would impact only a fraction of one percent of West Virginians.
In 2017, the tax law enacted by Congress and President Trump cut the top personal income tax rate from 39.6 percent to 37 percent. The AFP would restore the top marginal rate to 39.6 percent for incomes above $452,700 for individuals and above $509,300 for married couples.
In addition, the AFP would change how capital gains (profits from selling assets) and stock dividends are taxed for millionaires. Wealthy households get a large share of income from capital gains, which are currently taxed at a top rate of 20 percent, compared to the top rate of 37 percent for wages and salaries. In addition, unlike wages and salaries, capital gains are generally not taxed annually. Instead, they’re only taxed when the owner chooses to sell an asset. If the asset increases in value, but isn’t sold, the income is never taxed. Under the American Families Plan, taxable income over $1 million from capital gains or stock dividends would be subject to the same 39.6 percent rate that applies to other income. The AFP would also end the exclusion of capital gains on assets left to heirs for gains exceeding $1 million, or $2 million for married couples.
The proposed increases to the top income tax rate and capital gains taxes would affect less than 1 percent of taxpayers nationwide. According to the Institute on Taxation and Economic Policy, only 0.7 percent of taxpayers across the country would be affected by these two provisions. Virtually all of those taxpayers are among the richest 1 percent of households.
As a lower income state with relatively few millionaires, the share of taxpayers affected is even smaller in West Virginia. Only 0.1 percent of West Virginia taxpayers would see a tax increase under the proposal, the smallest share in the nation.
While only a fraction of a percent of West Virginians will see a tax increase under the provisions of the American Families Plan, tens of thousands of West Virginians will benefit from the AFP’s expansions of the Child Tax Credit and Earned Income Tax Credit. The boost to the Child Tax Credit will benefit an estimated 346,000 children in West Virginia, dramatically reducing child poverty, while the expansion of the Earned Income Tax Credit for childless workers will benefit an estimated 103,000 West Virginia workers.
Beyond the benefits of increased investment in child care, education, and health, the American Families Plan would work toward a tax system that raises more adequate revenue from those who have seen disproportionate income wealth gains in recent decades, including during the pandemic.
