April 29 2021

Biden Tax Plan Targets High Earners

Source: IBFD Tax Research Platform News

In a sweeping proposal to provide relief to workers and families, the White House has unveiled President Biden's plan for US individual tax reform. In its Fact Sheet: The American Families Plan, and press briefing "Background Press Call by Senior Administration Officials on the American Families Plan", dated 28 April 2021, President Biden laid out an ambitious proposal that includes raising taxes on the wealthiest Americans.

In particular, President Biden proposes the following individual income tax changes:

  • permanently extending the expansion of the Affordable Care Act (ACA) premium tax credits in the American Rescue Plan Act of 2021;
  • extending the child tax credit increases in the American Rescue Plan Act through 2050, and making the child tax credit permanently fully refundable;
  • permanently extending the expansion of the child and dependent care tax credit in the American Rescue Plan Act;
  • permanently extending the earned income tax credit expansion in the American Rescue Plan Act for childless workers;
  • granting the US Internal Revenue Service (IRS) authority to regulate paid tax preparers;
  • restoring the individual top tax rate to 39.6%;
  • ending the preferential tax rates on investment returns (capital gains and dividends) for households earning over USD 1 million per year;
  • ending the practice of "stepping-up," which allows accumulated gains to be passed down across generations untaxed:
    • for gains over USD 1 million (USD 2.5 million per couple when combined with existing real estate exemptions);
    • if the property is not donated to charity; and
    • with an exemption applicable to family-owned businesses and farms when given to heirs who continue to run the business;
  • permanently eliminating the carried interest so that private equity managers will be taxed on their income at the ordinary income tax rates;
  • limiting the amount of capital gains from the exchange of real property that can be deferred under the like-kind exchange rule to USD 500,000;
  • permanently extending the limitation that restricts deductions for excessive business losses; and
  • (the Net Investment Income Tax) consistently to those making over USD 400,000.