The House Ways and Means Committee released its tax policy proposals on Monday, September 13 with many differences from President Biden’s proposals and some items previously suggested by Senators.
At this point, these are merely proposals under consideration that may change. We are still in the early stages and don’t know which provisions are likely to make it through the legislative process into law.
As we closely watch these developments and begin to form strategies around the potential changes, the high-level takeaway right now is that two groups of people in particular should anticipate and begin planning with their financial advisor for tax increases:
- Individuals with estates exceeding $6 million and couples with estates exceeding $12 million
- Individuals with annual incomes exceeding $400,000
The most likely tax changes figure to come in form of increased rates for corporate taxes and capital gains.
The higher estate and gift tax exemption was already scheduled to sunset after 2025. This most recent proposal is moving that sunset forward to expire after 2021.
All the different plans have proposed tax increases on those earning more than $400,000 to pay for other government expenditures. There seems to be agreement on increasing the top marginal tax bracket rate and increasing the top rate on capital gains, but not the exact rate or income level.
One other highly anticipated and relevant topic that was not mentioned among the proposals was the limitation of state and local tax (SALT) deductions. A separate press release went out stating that any changes on this front still need to be negotiated, so we still currently lack an indication of how that may turn out.
There seems to be more agreement about increasing corporate tax rates from the current 21% level (with pushback from some), but now there are disagreements about how much to increase those rates, with both tiered rates going up to 26.5% and a flat 28% rate in the proposals.
What we’ve mentioned here is only the tip of the proverbial iceberg. The many details and nuances of these proposals are still fluid. It’s difficult to even project an anticipated timeline for the legislative process, but we can use 2017 as a point of reference with negotiations lasting through mid-October and the final bill being signed just before Christmas. There is pressure on Congress to come to an agreement earlier because there is also a separate infrastructure bill that needs to be approved, but there are still many disagreements between the House and Senate members that need to be reconciled.
We will continue to monitor the tax news coming out of Washington and notify you of anything that requires additional planning. Please don’t hesitate to contact your financial advisor if you have any questions about how this news impacts your specific financial situation.
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