Biden’s Proposed Tax Plan to Bring in $3.6T Over Next Decade
President Joe Biden’s proposed tax hikes are forecast to bring in $3.6 trillion over the next decade, the Treasury Department announced last week, a key funding source for the $4 trillion he hopes to spend remaking the American economy and social safety net.
What taxes are increasing in Biden’s plan?
While there has been some debate regarding which tax provisions will be affected, the biggest surprise in the plan is the assumption that there will be an increase in the capital gains rate which would be retroactive to April 2021. This means high net-worth individuals will be prevented from quickly selling their assets before the end of this year to avoid the hike. Although, in its current form, the retroactive tax hike on capital gains is very unlikely to get through Congress. The plan also involves increasing the top income tax rate from 37% to 39.6%. This would affect individuals who earn $452,700 a year, married couples who earn $509,300 a year, and heads of household who earn $481,000 a year. The Greenbook proposal also assumes that the capital gains increase would be effective on the date it was announced. Biden’s reasoning for this is to prevent the acceleration of gains during a time where tax rates are temporarily low. While the proposal allows many of Trump’s temporary tax cuts for individuals and families to expire, this will still allow the administration to bank savings from higher tax rates snapping back into place on families who make less than $400,000 a year, which he has vowed to not let happen. Many of the other tax increases are projected to be put into effect on January 1, 2022.
The Greenbook proposal also includes key tax-credit proposals that many Democratic lawmakers see as a crucial component to campaign on during the 2022 midterm elections. Some proposals include, but are not limited to, an expanded child tax credit through 2025 and benefits for green energy and electric vehicles. Congress is unlikely to enact Biden’s tax ideas as they stand, but there are still many that are supported by the White House. This will allow Congress to develop policies and find votes as well as have both parties compromise on certain aspects of the plan.
The Treasury outline also omits a key priority for Democrats, an expansion of the state and local tax (SALT) deduction. Many lawmakers from high-tax states reported that they would be in opposition to Biden’s economic agenda unless it also included an expansion of this write-off, which is currently capped at $10,000. The Greenbook proposal goes into detail about other provisions, such as imposing taxes at death on inherited property for large gains accrued during the prior owner’s lifetime. This would prevent private-equity as well as hedge fund managers from applying the long-term capital gains tax rate to their portion of the fund’s profit, also known as carried interest, if their overall taxable income exceeds $400,000.
A representative said that the administration is willing to work with Congress on proposals to create new research and development tax incentives to replace those created under President Trump’s administration.
Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.