Tax Bill Takes a Back Seat, for Now
The big news from Capitol Hill this past week was the US House of Representative’s passage of President Biden’s $1.9 trillion stimulus package. The bill now goes to the Senate, and it seems likely that the resulting revisions will not contain everything on President Biden’s wish list, including the proposed rise in the minimum wage to $15/hour. The bill also includes unemployment aid, help for schools and businesses, and support for the continued distribution of the COVID-19 vaccines. The plan also provides for $1,400 checks to individuals earning $75,000 per year or less ($150,000 per year for married couples filing jointly). State, local, and tribal governments would also get $350 billion. The bill would also expand the child tax credit (from $2,000 to $3,000 per child, or $3,600 for each child under age 6) and child tax credit (up to 50% of all child care expenses for children under 13, up from $3,000 to $4,000 for one child and up from $6,000 to $8,000 for multiple children). The earned income tax credit would be expanded as well; currently, only those making $16,000 or less qualify for the credit, but the relief bill would raise the cap to $21,000, and expand eligibility to workers 65 and over.
All this means that the major focus at present will remain on the stimulus legislation and that the Biden tax plan is likely to be waiting in the wings for a while as legislators and others focus on the coronavirus aid plan. But at some point, the proposed tax legislation will come into the spotlight, and undoubtedly, a wide-ranging debate will ensue. Among the more prominent features are a complete rollback of the 2017 tax cut for taxpayers with income above $400,000. The plan would also tax capital gains at the same rate as ordinary income for people with more than $1 million in income (currently the maximum tax rate for capital gains is 20%, applying to taxpayers making $441,451 or more per year). The corporate tax rate would rise from 21% to 28%. The estate tax exemption would drop by about 50%, and the proposed plan would eliminate the step-up in basis on assets held at death.
Of course, to pass any tax increases, President Biden will need to gain the support of every single Democratic senator. And some Democrats—including Joe Manchin of West Virginia—are questioning the wisdom of raising taxes when the US economy is still recovering from recession. We will need to see how the political winds are blowing and examine the actual bills as they move through Congress before we can make any recommendations.
No matter the ultimate form the tax legislation takes, we are committed to staying abreast of developments and providing our clients with timely, actionable strategies for ensuring that their estate plans, investment portfolios, and other important financial instruments are structured for maximum tax efficiency. If you have questions about how potential changes in the tax laws could affect your finances, we invite you to contact us. You can also click here to read our recent article concerning possible changes in the estate tax laws.