An 8-Year Extension on Middle Class Tax Cuts?

the power of zero

Joe Biden’s tax proposal has serious implications for anyone attempting to use the Power of Zero paradigm for their retirement planning.

We know that the current tax cuts enacted by President Trump will remain at their current levels for the next five years and will revert to what they were in 2017 starting January 1, 2026.

This tax sale gives us a historic opportunity to take advantage of low tax rates when we are executing a shift between the tax-deferred and tax-free buckets. If you wait until 2026 to shift that money, the tax brackets will go up and it will cost you significantly more.

The Democrats won the runoff elections in January which have created an opening for Joe Biden to bring about the tax initiatives that he campaigned on.

Joe Biden wants to raise taxes on anyone making more than $400,000 per year. Not only that, but you will pay a FICA tax on any dollars above the $400,000 mark of 14%.

Right now, Joe Biden has to go through the budget reconciliation process to effect a permanent tax cut, but he can use the same process to extend the current tax cuts.

For all intents and purposes, Covid has thrust us into a recession. This means that Joe Biden will not likely raise taxes until 2022.

Joe Biden could create a tax cut that would last for 8 years essentially extending the Trump tax cuts for another 3 years.

For people making less than $400,000, their tax brackets would stay historically low almost until 2030. This gives you 8 years to get your shifting done and allows you to spread out the burden even more.

David calculated the benefits of an additional 3 years when shifting $1.5 million to the tax-free bucket. The difference is an 11% difference in taxes that you would have to shift the money in a shorter time period.

This won’t be a great deal if you make more than $400,000 or if you are planning on shifting enough money to put you above that threshold.

The reality is that tax rates are likely to be much higher in 2030 and beyond. Even if the dates are pushed back, it only kicks the can further down the road.

When taxes are on sale, every year counts. As of Jan 1, 2018 you are on the clock. By keeping tax rates low for middle America the day of reckoning is a bit further away, but the fix will have to be much more draconian.

Joe Biden is not fixing the root of the problem. In order to balance the budget by raising the tax rates on everybody, tax rates would have to go up to 49% across the board.

Simply taxing the top 1% is not enough in order to get the revenue we need to right our financial ship. The tax base has to be broadened and everyone will have to pony up eventually.

David believes that Joe Biden will work through the budget reconciliation to extend the Trump tax cuts by the end of 2021, despite that it’s the opposite of what we need to do to fix our financial situation.

If you’re looking to get into the zero percent tax bracket this will be a great opportunity to stretch out your tax burden over a longer period of time.

The Covid stimulus and vaccine are the priorities right now, but once those are dealt with he’s going to start tackling tax reform.

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