Biden Tax Plan Begins to Take Shape – Part 1
President Biden in his speech to Congress last week gave us some details on the tax bill he will attempt to get passed. While it’s very early in the process, and what ultimately becomes law often varies greatly thru the back and forth negotiation process in Congress, let’s take a look at how some of these changes might or might not affect our clients.
Biden talked about raising the capital gains tax rate. Currently, capital gains is taxed at a lower rate than regular income. Right now top rate for capital gains is 20% vs. 37% for regular income. The President proposes to raise the top rate back to 39.6%, which is what it was before the last tax law changes in 2017. Capital gains would then be taxed at the same rate as other income, however, this would only apply to individuals with income of $1,000,000 or more.
This change would only affect the very wealthy. Additionally, most retirees drop to a lower tax bracket once they retire, drawing their income mostly from Social Security, pension and interest and dividends. The income threshold of $1,000,000 is certainly high enough that if you are reader of this blog, it is very likely that this provision wouldn’t affect you or your loved ones.
Biden’s other proposed change would affect the step up in basis although it wouldn’t entirely eliminate it. Next week I’ll review that part of his tax proposal.