President Biden’s Tax Plan Could Raise Taxes on Corporations and the Wealthy
It was not the centerpiece of his campaign, but President Joe Biden took office in January touting a tax plan that he says will help the middle-class Americans by shifting some of their tax burden back to corporations and the wealthy. Among other things, Biden has proposed returning the top individual income tax rate to 39.6%, increasing the corporate income tax rate to 28%, and reducing the estate tax exemption to $3.5 million while increasing the top estate tax rate.
Biden has argued that the tax cuts implemented by former-President Donald Trump primarily benefited large corporations and the wealthy, which helped expand the country’s already sizable wealth gap. While Biden’s tax plan would require high-income Americans and corporations to pay their fair share of the country’s taxes,he has said that those making under $400,000 annually will not pay more taxes.
Biden’s proposed tax legislation has not been introduced into Congress, but given the Democrat’s control of both the House and Senate, many observers believe that he has a good chance of getting it enacted. However, the ongoing COVID-19 pandemic and other legislative priorities may cause it to be delayed.
Biden’s Tax Plan for Individuals
Biden’s tax plan would make the following changes to the Tax Code for individuals and the owners of pass-through entities:
|Biden’s Plan||Current Law|
|Return the top individual income tax rate to 39.6%, which is where it was prior to the TCJA||Top individual income tax rate is 37%|
|Tax capital gains as ordinary income when a taxpayer has more than $1 million in income||Capital gains of $441,451 or more are taxed at 20%|
|Impose Social Security taxes on wages or income of more than $400,000||Social Security tax is only applied to the first $137,700 of wages or income|
|Reduce the estate and gift tax exemption to $3.5 million and increase the top estate tax rate to 45%. Biden has said he would consider eliminating the step-up in basis for inherited property.||The first $11.58 million each individual receives is exempt and the fair market value is established at the date of decedent’s death.|
|Taxpayers with incomes of more than $400,000 cannot defer their capital gains using like-kind exchanges. The current like-kind exchange rules will remain in place for taxpayers earning $400,000 or less.||Like-kind exchanges can be used to defer the capital gains for exchanges of real property held for productive use in a trade or business.|
Biden’s Tax Plan for Corporations
|Biden’s Plan||Current Law|
|Increase the corporate income tax to a 28% flat rate.||Corporate income is subject to taxation at a flat 21% rate.|
|A 15% alternative minimum tax on global book income of $100 million or more.||Alternative minimum tax repealed by the TCJA.|
|Increase the tax on un-repatriated global intangible low-taxed income (GILTI) to 21% applied on a country basis.||A 10.5% tax on un-repatriated GILTI.|
QBI Deduction Would be Phased Out
The qualified business income deduction (QBI) was added to the Tax Code by the TCJA and allows the owners of sole proprietorships, partnerships, S corporations, and some trusts to deduct up to 20% of their qualified business income. Biden’s proposal would retain the deduction for those who make less than $400,000, but would eliminate it for those making $400,000 or more.
Questions About Biden’s Tax Plan?
If you live in the Bay Area and have questions about how Biden’s proposed tax plan could affect you or your business, the tax professionals at Code Accounting can help. The proposed changes are intended to increase the tax bills of wealthy individuals and business owners, but there are steps you can take to minimize their impact. Our skilled accountants can help you plan ahead so that you are prepared when any changes to the tax law take effect.Tags: 2021, biden, proposed legislation, tax plan
Categorised in: Government, Taxes
This post was written by Sean Allaband