Tax Highlights: The American Families PlanApril 28, 2021 | Louis Vlahos |
In advance of the President’s address to Congress this evening, the White House this morning released a summary of Mr. Biden’s proposed changes to the Internal Revenue Code. These changes, together with his previously announced plans to increase the federal corporate income tax, are intended to accomplish three goals: fund the government’s efforts against the pandemic, support new social programs, and enable tax cuts for lower-income families.
What follows is a summary of the measures advocated by the President to ensure that the wealthiest Americans pay their “share” in taxes.
- Increase tax enforcement against the wealthy by:
- Requiring financial institutions to report information on account flows so that earnings from investments and business activities are tracked more easily; and
- Providing additional resources to the IRS for the purpose of enforcing the tax laws against large corporations, businesses, and estates, and higher-income individuals.
- Increase the top federal income tax rate on the wealthiest Americans to 39.6 percent.
- At this point, it is not clear at which level of taxable income this rate would apply.
- Increase the tax rate for long-term capital gains and dividends to 39.6% for households making over $1 million (presumably in gross income of any kind) for the taxable year.
- Eliminate the basis step-up for property passing from a decedent if the gain inherent in the property at the time of death exceeds $1 million ($2.5 million per couple when combined with certain unidentified real estate exemptions).
- Tax the gain inherent in such property as if it had been sold, unless the property is donated to charity.
- This deemed sale rule would not apply to family-owned businesses that are passed to the owner’s heirs, provided the heirs continue to run the business.
- Eliminate the favorable treatment for carried interests.
- Eliminate the like kind exchange for real property where the gain realized exceeds $500,000.
- Make permanent the current limitation that restricts the use of excess business losses.
- Ensure that the Medicare tax is applied equally to all taxpayers making over $400,000 in a taxable year.
- Louis Vlahos