Proposed Tax Increases Designed for the Wealthy (Could Affect Many More)
Published on July 27, 2021
The current administration’s proposed tax policy changes are comprised of three major segments. We have been told that these changes are designed to primarily affect only the wealthiest families, but they could impact the middle class as well, especially if some of the more radical policies are tacked on before any changes take effect.
President Biden signed the American Rescue Plan into law on March 11th, 2021, distributing $1.9 trillion to individuals and companies. He then proposed the American Jobs Plan on March 31st for infrastructural improvements and an estimated cost of $2.3 trillion. He went on to propose the American Families Plan on April 28th with an additional price tag of $1.8 trillion. This two month period saw a proposed $6.0 trillion in new expenditures. The Biden administration also aims to reverse years of underfunding of the Internal Revenue Service.
After years of heavy promotion from the far left, universal healthcare plans like Medicare for All have been steadily becoming more mainstream. If a government funded healthcare policy passes during this Congress or after the new mid-term Congress, this would almost certainly call for higher taxes on more than just the richest Americans.
Today’s capital gains tax rate tops out at 20%. It is proposed to change to ordinary income for any American with over $1 million of income.
The American Families Plan would repeal the step-up in basis policy that allows families to pass assets down to any designated beneficiary without first paying a tax on the asset’s gains since it was purchased or inherited. The first $1 million is excluded, but that amount may catch many families’ estate settlements and cost the heirs significantly.
In particular, farmers and small business owners will be impacted because all the gains over $1 million would be taxed at 43.4%. There is talk that some family farms and businesses could be excluded if family members continue to farm or manage the business. Owning something with a known tax obligation riding like this would be a large burden to bear. Most heirs, or at least some of the siblings, want their money now rather than later. The reduction in step-up in basis also includes stocks and all other non-qualified investments that have had any increases in value from purchase or inherited date of ownership.
There are certainly some positives to letting the wealthy pay their fair share, but the increased need for higher taxes will likely extend down to the rest of us. Historically, high-income earners and business owners have consistently figured out how to reduce their taxes, resulting in a need to continue increasing taxes down into the rest of the brackets.
Please talk to your Wealth Planner about how you can reduce the possibility of imminent, large tax increases. Act now instead of reacting later and having to figure out how to pay your increased bill to the IRS.
In 2020, the debt-to-GNP ratio in the US was 129% – even higher than the 118% we saw after World War II when the highest tax bracket was 94% and the middle bracket was above 60%. The debt in this country will be even higher with the proposed $6 trillion in increased spending and will continue to increase with future expenditures.
Act today by setting a time to visit with your Wealth Planner to learn how you can take advantage of lower tax paying opportunities this calendar year before they increase. Taxes are currently the lowest they’ve been in most of our lifetimes, but they can’t last long. Talk with us to find out if you should be paying taxes on your qualified investments now while they’re on sale.
- CNBC – Biden Wants to Raise $1.5 Trillion by Taxing the Rich. Here’s How. Published 4/29/2021 by Greg Iacurci
- U.S. & World Economies – Biden’s Tax Plan – Kimberly Amaded – 4/30/21
- Investopedia – Biden’s Tax Plan: What’s Enacted, What’s Proposed. Michelle P. Scott. 4/29/21
- CNBC – Wealth May Face Up To 61% Tax Rate on Inherited Wealth Under Biden Plan. Robert Frank 5/3/21
- AE Wealth Management – The Wealth Report – American Families Plan Proposes Increased Taxes for High Earners. 5/21
- Tax Foundation www.taxfoundation.org 1913-2013
- The Balance – US National Debt by Years Compared to GDP and Major Events Kimberly Amaded 3/25/21
Written by Bob Fugate CFP® of Blue Ridge Wealth Planners.
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