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Revisiting President Biden’s Proposed Tax Plan

02.18.2021

With President Joe Biden in office, it is worth revisiting his tax plan that was outlined on the campaign trail. Democrats now have a slim majority in the Senate after the Georgia run-off races were won by Democrats Rev. Raphael Warnock and Jon Ossoff. Coupled with a Democratic majority in the House of Representatives, the chance that some of the Biden tax proposal will be enacted has increased.   

As part of the $1.9 trillion stimulus plan Biden unveiled, only a few tax items, including the popular Child Tax Credit, Child Care Tax Credit and the Earned Income Tax Credit, were revealed. The rest of his tax legislative agenda is likely to be proposed later. While it is unknown when and what will be pursued and survive the legislative process, it is valuable to take a fresh look at some of the tax proposals President Biden pushed for on the campaign trail.

Proposals Included in the $1.9 Trillion Stimulus

Child Tax Credit – For One Year Only

  • Increase the credit to $3,000 for each child aged 17 and under and $3,600 for children under 6
  • Make the credit fully refundable

Child Care Tax Credit – For One Year Only

  • Increase the credit to 50 percent of childcare costs or maximum of $4,000 for one child or $8,000 for 2 or more children
  • Make the credit fully refundable

Earned Income Tax Credit – For One Year Only

  • Increase the credit from $530 to $1,500 for adults without children
  • Increase the income limit from $16,000 to $21,000

Following are some of the core proposals from the campaign trail to keep an eye on.

Higher Taxes for Individuals

Biden frequently differentiated between taxpayers that make more than $400,000 and those that make less. Some of the tax increases include:

  • Increase top tax rate to 39.6 percent on taxable income over $400,000
  • Impose 12.4 percent payroll tax on wages over $400,000
  • Cap the value of tax deductions at 28 percent
  • Implement a tax rate of 39.6 percent on income above $1 million for long-term capital gains and qualified dividends

Tax Cuts for Individuals

  • New refundable $15,000 tax credit for first time homebuyers
  • Renter’s tax credit to reduce rent and utilities to 30% of income
  • Restore full electric vehicle tax credit
  • Reform and reinstate tax credits for energy efficiency
  • Eliminate the $10,000 cap on the state and local income tax deduction

Corporate and Business Tax Increases

  • Raise corporate income tax rate to 28 percent
  • Create 15 percent minimum tax on global book income over $100M
  • Double GILTI (global intangible low taxed income) tax rate to 21 percent
  • Phase out or eliminate 20 percent qualified business income deduction for pass-through entities
  • Impose tax penalties on drug manufacturers increasing prices more than inflation
  • Impose tax penalties on corporations moving jobs offshore
  • Eliminate like kind exchanges

Tax Cuts for Business

  • 10 percent credit for reopening closed plants, retooling facilities, and expanding U.S. production
  • Incentives for manufacturing drugs and other critical products in U.S.
  • Expand new markets credits
  • Expand low-income housing credit
  • Tax credit for building onsite childcare facilities
  • Tax break for small businesses that start a retirement plan

Estate Tax

  • Eliminate stepped-up basis for inherited capital assets
  • Decrease estate tax exemption for individuals from $11.7M to $3.5M
  • Increase top estate tax rate from 40 percent to 45 percent

While it is difficult to predict what, when and how any of the tax proposals will move forward, tax changes may be coming. We encourage you to reach out to your Brown Smith Wallace advisor or Debbie Vandeven, Tax Partner, at dvandeven@bswllc.com or 314.983.1386 to discuss your specific situation and how best to prepare for any possible changes.

Team

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