How Concerned Should You Be About Biden’s Proposed Tax Changes?
President Joe Biden has proposed spending initiatives to benefit infrastructure, jobs, and families. Combined with those campaigns, he also seeks increased taxes for corporations and well-off Americans. Should you be concerned? Read this article for a breakdown of his tax proposals and whether you should start changing your financial plan.
The American Families Plan
President Biden has proposed the American Families Plan to help boost education opportunities for lower- and middle-income Americans. The plan includes a wide range of proposals, among them:
Free preschool
Two free years of community college
An expansion of school meals in areas with high poverty rates
An extension of the expanded Child Tax Credit
Paid family and medical leave
Assistance to institutions serving minority groups
Biden calls for tax increases as part of the $1.8 trillion plan—with the increases primarily focused on wealthy taxpayers:
The federal government would increase the top individual income tax bracket to 39.6%. This change would mark a return to the rate before the Tax Cuts and Jobs Act reduced it to 37%. The tax hike would apply to incomes over $400,000.
The capital gains tax rate would increase from 20% to 39.6% for households with incomes over $1 million. Combine that increase with the 3.8% Net Investment Tax, and the rate would be 43.4%.
Inheritances would be affected as well, with the step-up in basis ended for gains of more than $1 million. However, the White House has recently emphasized that protections would be implemented for family-owned businesses and farms.
The American Jobs Plan
The president seeks to revamp the nation’s infrastructure and create new jobs with the $2.3 trillion American Jobs Plan. He proposes paying for those changes through his Made in America Tax Plan. Among the changes:
The corporate tax rate would climb from 21% to 28%.
Multinational corporations’ global minimum tax would be 21%.
A 15% minimum tax on book income would be implemented.
Is It Time to Change Your Financial Plan?
Biden’s tax proposals have alarmed some. Some analysts say corporate tax increases will harm the stock market and the economy. Meanwhile, the new capital gains rate would be the highest among developed countries. And many large estates would need a review if the step-up in basis is eliminated.
We don’t have space in this article to analyze the specific impact that each tax increase could have if passed. But the key phrase in that last sentence is “if passed.”
The president’s plans are merely proposals at this point. No bill has been introduced to Congress, and what eventually gets introduced—and ultimately signed into law—may bear little resemblance to what Biden seeks. Indeed, as one MSN article points out, the chances of significant tax reform seem to have dwindled, with Republicans arguing that tax increases can hurt the economy’s post-COVID recovery.
With no clear tax legislation in the works, our Sacramento-area financial planning firm has cautioned some of our concerned clients against changing their financial plans. We encourage people to make proactive, rather than reactive, changes to their financial, investment, estate, and tax strategies. And, in this case, that means waiting until a more specific picture emerges.
If you still feel anxious, consider talking with your estate planning attorney or tax professional about steps you might take now or in the future. Or consider working with a fiduciary financial advisor. You will receive recommendations based on changes to not just the Tax Code, but your entire financial picture and goals.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.