Between a more urgent need for Covid relief, economic stimulus and a narrowly divided Congress, Joe Biden’s proposed tax plan may not get much traction in the early days of his administration. It is important, however, to take a look at the president-elect’s priorities that may inform more targeted legislative actions.
Below is a snapshot of Biden’s proposed tax plan, as compiled by the nonprofit Tax Foundation:
Tax increases:
- Raise payroll taxes on income earned above $400,000.
- Increase the tax rate on income above $400,000 to 39.6%.
- Eliminate step-up in basis for capital gains taxation.
- Tax long-term capital gains and qualified dividends at 39.6% on income above $1 million.
- Restore estate and gift tax rate and exemption to 2009 levels ($3.5 million exemption with top estate tax rate of 45%).
- Cap tax benefit of itemized deductions to 28% of value for those earning more than $400,000.
- Restore Pease Limitation on itemized deductions for taxable income above $400,000.
- Phase out qualified business income deduction for those earning more than $400,000.
Tax Credits:
- Expand Earned Income Tax Credit for childless workers 65 and older.
- Expand Child and Dependent Care Tax Credit to $8,000 in qualified expenses. Increase the maximum reimbursement rate to 50%.
- Increase the Child Tax Credit to $3,000 for children 17 or younger and provide a $600 bonus credit for children under 6. The Child Tax Credit would be fully refundable.
- Reestablish First-Time Homebuyers’ Tax Credit, providing up to $15,000 for first-time homebuyers.
- Establish a Manufacturing Communities Tax Credit to reduce tax liability of businesses that experience workforce layoffs.
- Expand and make permanent the New Markets Tax Credit.
- Offer tax credits to small businesses for adopting workplace retirement savings plans.
Tax Changes:
- Increase corporate income tax to 28%.
- Create minimum tax on corporations with book profits of $100 million or higher. Corporations pay the greater of their regular corporate income tax or the 15% minimum tax while still allowing for net operating loss.
As we stated earlier, these proposals would have to make their way through a deeply divided Congress, regardless of the outcome of the Georgia U.S. Senate runoff in January. Other initiatives will likely take priority over many of these tax proposals, but we will continue to monitor tax developments so we can provide you timely advice.