If this analysis is accurate, the biden tax plan DOES hit middle and upper middle class

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Sure enough, most of Biden's proposed tax hikes — limited deductions and higher rates, for example — apply only to those earning $400,000 or more.

But Biden’s proposed change to 401(k) plans will hike taxes on the middle class. If you’re a single earner earning the median household income, Biden’s plan would give you a $1,000 tax hike, and mostly (but not fully) offset that tax hike with a government contribution to your retirement account.

Here’s how it would happen:

Under current law, income you put in your 401(k) retirement account today doesn’t get taxed until you can actually touch it— which is at retirement, at 59 and a half years old. It’s not a tax deduction like the deductions you get for health insurance and mortgage interest, as much as it’s a tax deferral. You will pay taxes on that income, but not until you get your hands on it and can spend it.

If you earn $62,400, which is close to the median household income in the United States, and you take the standard deduction ($12,400), leaving your taxable income at $50,000, and your federal income tax burden would be $8,963. (We’re simplifying this by removing other deductions and taxes.)

But say you want to save $5,000 a year for retirement. Then you get your employer to sock away $5,000 in your 401(k), which reduces your taxable income to $45,000, and thus reduces your taxes to $7,863 — down from $8,963. That $1,100 tax savings is equal to your $5,000 contribution multiplied by your 22% marginal tax rate.

Because of that tax savings of $1,100, you reduced your take-home money by only $3,900 in order to increase your retirement account by $5,000 — but remember, you’ll pay taxes on that $5,000, and all its earnings, once you cash it out in retirement.

Biden would tax you on that $5,000 you socked away, even though you don’t get to spend it, and even though he will tax you on it again when you cash out in retirement. To make up for it, Biden would have Uncle Sam make a contribution to your 401(k).

So if Biden were elected, and our $62,400-earner wanted $5,000 in his account, he could reduce his contribution to $3,968, and Biden would match 26% of that ($1,032), bringing the total contribution to $5,000. Our taxpayer would get zero tax break, a net $1,100 tax hike compared to current law, but would instead get a $1,032 gift from Uncle Sam in the form of a retirement contribution. So if you want to count the $1,032 as a tax credit (which is what Biden calls it), offsetting the $1,100 tax hike, it nets out to a small tax hike, but it’s a tax hike.

Your retirement account gets the same amount of money, you take home a little bit less money, and Uncle Sam takes home a tiny bit more money.

If you go up to a $100,000 earner trying to contribute 10%, whose taxes Biden promises not to hike, the tax hike would be bigger (about $335 less in take-home pay) because he’s in the 24% tax bracket.

Someone earning $350,000 is very high income, but Biden still swears this guy won't get a tax hike under his plan. If we take his plan seriously, though, that earner making sure $10,000 goes into his 401(k) a year will see a $3,500 tax hike and a retirement subsidy of less than $2,100 — decreasing his take-home pay $1,400.

Now this differential, a larger tax hike for higher-income people, is exactly what Biden is aiming for with this 401(k) plan. The current system provides more incentive for people to save for retirement as their income grows because excluding income from current-year taxation becomes more valuable, the higher your tax bracket. Biden's plan would increase the incentive of lower earners to contribute and decrease the incentive of higher earners.

Maybe you agree with Biden that middle-class people and above should get a tax hike for saving for retirement in order to subsidize retirement savings by lower earners, but this is still a proposed tax hike on middle-income people.

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