By Nick Ziarek CFP®, CFA

How Will President Biden’s Tax Proposals Affect You? 

Tax reform is a front burner topic as President Biden advances issues core to his campaign and, more importantly, to help fund the proposed infrastructure spending to build back America after COVID.

The landscape can be murky as various proposals have been rolled by the administration, namely the American Families Plan and the American Jobs Plan – neither of which should be confused with the American Rescue Plan which provided temporary relief and a third round of stimulus back in March.  At the same time, leaders in the Senate and House are focusing on their own proposals to garner support within their respective chambers.

Here are the key highlights of the two major plans proposed by the White House:

 

American Jobs Plan (announced March 31, 2021)

• $2.2 trillion increase in federal spending spread over 10 years with $1.7 trillion specifically dedicated to infrastructure
• Primarily funded through an increase in the corporate tax rate from 21 percent to 28 percent
• Impose a minimum 15 percent tax on corporate book income (versus taxable income) for the very largest companies

American Families Plan (announced April 28, 2021)

• $1.8 trillion in new federal spending on education, childcare, family and healthcare programs
• Increase the top marginal tax rate from 37% back to the Obama-era level of 39.6%
• Long-term capital gains and qualified dividends taxed as ordinary income for taxpayers with taxable income above $1 million resulting in a rate of 43.4%
• Eliminate the step-up in basis for inherited assets on gains above $1 million ($2 million for married couples)
• Extend child tax credit increases found in the American Rescue Plan through 2025. Benefits are $3,600 for children under 6 and $3,000 for children 6 to 17 with phaseouts for higher income levels
• Make permanent the expanded health insurance premium tax credits from the American Rescue Plan including the gradual phaseout of credits for higher incomes

As with any legislation, there is always room for negotiations between parties and to appease factions within the controlling party.  Democrats hold a razor-thin 50-50 margin in the Senate with VP Kamala Harris casting any tie-breaking votes.  Any dissension within the party could derail the train before it even leaves the station.

The value of a comprehensive holistic approach to financial planning will be exceedingly important over the last few months of 2021 as tax reform works its way through Congress.  Your Shakespeare advisor will help address the impact of any changes on your portfolio today and in the future.  Watch for additional updates throughout the year.