Is it possible for the tax proposals moving their way through Congress to be retroactive for 2021?
Biden has proposed raising the business tax from 21% to 28%, and when you add in the State corporate income tax of 7% that will put the US near the top highest corporate tax rates in the world.
For individuals, Biden has proposed increasing the top income tax bracket from 37% to 39.6% for married couples making over $400,000
He has also proposed a large change to the FICA taxes. For people making $400,000 or more the FICA tax makes a comeback and when added up to all the other tax increases the baseline is 55.8%. In high tax states like California that total approaches 70%.
Biden also wants to turn death into a taxable event and make the tax benefit for itemized deductions be limited for people making more than $400,000.
If you’re making less than $400,000 per year you don’t have too much to worry about regarding taxes. If you make more than $400,000 you will find that the IRS’s crosshairs are aimed squarely upon you and your retirement account.
Many times throughout history Congress has either raised taxes, reduced exemptions, or some combination of the two. The latter seems to be the case right now.
Long term capital gains will be taxed at the ordinary income tax rate of 39.6% on anyone making more than a million dollars. In a state like California your effective capital gains tax rate will be over 50%.
Estate tax exemptions will also be affected by the tax proposals, as well as the lifetime gift tax exemption, and more.
Joe Biden is proposing these tax changes to finance his spending initiatives. All this money is being earmarked for future spending, not for paying down debt.
According to the Wall Street Journal, the Biden administration tax increases would be retroactive to April 28th, 2021 in order to avoid giving people the ability to plan for it. There is historical precedent for this kind of increase with it happening under the Clinton administration.
The question is which taxes will be retroactive and which ones will come into effect in 2022? Right now, it’s only the capital gains tax but there is precedent for it being applied to income taxes relatively late in the year as well.
We don’t know if any of the tax rates will go up this year or next year. The situation in Afghanistan may have lost him some political capital and slowed him down, but maybe not.
Mentioned in this Episode:
Bracing For Biden – fa-mag.com/news/bracing-biden-63031.html?section=47
Biden Budget Said to Assume Capital-Gains Tax Rate Increase Started in Late April – wsj.com/articles/biden-budget-said-to-assume-capital-gains-tax-rate-increase-started-in-late-april-11622127432
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