With so much recent chaos in Washington, there has been little time to muse over the new administration's plan to re-work tax policy over the next year or two.
A month ago, many tax-policy experts blithely ignored Biden’s tax policy agenda, assuming a gridlocked Congress would limit substantive change. However, chances for his proposal improved greatly after the Senate run-off in Georgia, giving Democrats control of the Executive Office along with the House and Senate.
Before jumping into what might or might not happen, let’s discuss what we know of President Biden’s proposed tax plan.
Personal income tax rates – Biden has taken a moderate approach to adjusting marginal tax rates. While he has shown some desire to tax wealthier taxpayers, his focus has been on the top end of the rate bracket – raising it from 37% back to 39.6%, where it sat prior to 2017s tax cut. While he has not been terribly specific on this front, Biden has promised not to raise taxes on those making less than $400,000. Wealthier taxpayers should be prepared for a bump in capital gain rates, with those earning more than $1 million taking the brunt of the hit.
The president has proposed reducing the federal estate tax exemption to pre 2017 tax reform levels. The proposal also includes eliminating the step-up in basis for inherited capital assets.
The president has invested heavily in reducing the tax burden for low and middle-income taxpayers. Included in his proposal are forgiveness of student loan debt (and tax paid on this forgiveness); expanding the child and dependent care credit to $8,000 per child (up to $16,000); and expanding tax-breaks and access to 401(k) plans for workers saving for retirement.
Currently, wages above $142,800 are not subject to the Social Security payroll tax. Biden has proposed making wages above $400,000 subject to the tax.
Biden has proposed a new $5,000 tax credit for “informal” caregivers – namely family members or loved ones – who provide long-term care to a family member. He also plans to increase tax benefits for elderly Americans paying for long-term care insurance with their retirement savings.
The most notable change would be increasing the top corporate tax rate from 21% to 28%. Prior to 2017, the top rate was 35%. Biden also proposes a new 10% “Made in America” tax credit for companies investing within the U.S. Tax credits have also been proposed for new manufacturing communities to modernize or re-engage old facilities.
What does it all mean? According to the Committee for Responsible Federal Budget, a bi-partisan non-profit public policy organization, Biden’s tax plan will increase taxes for the top 1% of earners by 13% to 18% of after-tax income, and indirectly increase taxes for all others by 0.2% to 0.6%.
Will Biden’s tax proposal get fully enacted? Probably not. Most policies of this magnitude look starkly different once worked through Congress. Consider also the new administration will have much on its plate over the first 100 days, including COVID-19 related economic relief and efforts to help vaccinate most Americans. With that backdrop, the prospects for enacting new tax policy of any nature remains uncertain. Stay tuned.
Like any policy, these proposed changes will affect people differently depending on their situation. So, if you have questions on your own personal plan, please contact me anytime at firstname.lastname@example.org or use the form on my Advisor Bio page.
Information presented is believed accurate as of the date of dissemination. The information presented was obtained from sources deemed to be reliable. This blog is intended to be general in nature and should not be viewed as a comprehensive analysis of the topics discussed. Content does not involve the rendering of personalized investment or tax advice nor is it intended to supplement professional individualized advice. Always consult a professional Financial Advisor and a tax Professional before applying any of the approaches or strategies made referenced directly or indirectly herein.
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