Biden’s Proposed Tax Changes: How Worried Should You Be?
President Joe Biden has proposed a range of tax changes that have some people alarmed. But should you start changing your financial plan now? Read on for a summary of his proposed tax changes and whether you should be concerned.
The President’s Tax Proposal
President Biden this year launched two initiatives—the American Families Plan and the American Jobs Plan. Both would draw on taxes to pay for spending.
American Families Plan: The $1.8 trillion American Families Plan would provide a range of benefits designed for lower- and middle-income families, including free preschool; two free years of community college; an extension of the expanded Child Tax Credit; and assistance to institutions serving minority groups.
Funding would be provided through tax changes primarily affecting wealthy taxpayers, including:
The top federal individual income tax bracket would return to $39.6% after the Tax Cuts and Jobs Act reduced it to 37%. This change would apply to individuals with incomes over $400,000.
The capital gains tax rate would rise to 39.6% for households with incomes over $1 million. With the 3.8% Net Investment Tax, the rate would be 43.4%.
The step-up in basis for heirs would be eliminated for gains of more than $1 million. However, the White House has indicated that there would be protections for family-owned farms and businesses.
American Jobs Plan: This is a $2.3 trillion plan to improve the nation’s infrastructure and create new jobs. The president proposes paying for the American Jobs Plan through a “Made in America Tax Plan” that includes:
Increasing the corporate tax rate from 21% to 28%
Raising multinational corporations’ global minimum tax to 21%
Implementing a 15% minimum tax on book income
Should You Change Your Financial Plan?
If you’re a well-off American, some of the proposals may feel alarming. The capital gain tax would be a significant increase from its current 20% rate and the highest among developed countries. And estates over $1 million would need reassessment in light of eliminating the step-up in basis.
However, these proposals are just that: proposals. Senate and House leaders must draft legislation to advance these tax reform ideas into tax law. And we can almost anticipate that what the president eventually signs into law will be modified from his original initiatives.
It is generally too early for high-net-worth taxpayers to modify their financial plans. Our Denver-area fiduciary financial planning firm has counseled clients to wait until we have specifics. By waiting until later in the process, we gain a fuller picture and can more thoughtfully respond. We avoid reacting and hurting our financial plans.
If you are still concerned, consider talking with your tax professional or estate planning attorney. Since they will know your unique situation, they can advise you on any potential changes you should make now or later. By working with a financial advisor, you can also get a comprehensive picture that includes not only changes to the U.S. Tax Code, but your current financial situation and your short- and long-term goals.
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