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Tomorrow, January 20th, Joe Biden will be sworn in and for the first time since 2009, the Democrats will control the White House, House and Senate (although Vice President Harris provides for a tie). There were a few suggestions during the campaign, here are some:
● Increase in corporate tax rates from 21% to 28%,
● Companies with net income greater than $ 100 million will be subject to corporate income tax of at least 15%, although net operating losses and foreign tax credits will still apply.
● Increase the global low-tax intangible income tax rates imposed on foreign subsidiaries of US companies from 10.5% to 21%.
● Increase the individual upper limit tax rate to 39.6%.
● Introduced a 12.4% wage tax on income over $ 400,000, leaving a gap in wage tax for income over $ 137,000 and below $ 400,000.
● Increase the Capital Gains Rate for applicants with income over $ 1 million to a total of 43% (39.6% plus 3.8% capital gains tax).
● Limit individual deductions (including charities) to 28% of adjusted gross income.
● Eliminate Section 199A (now 20%) small business income deductions for incomes over $ 400,000 over time.
● Give first-time home buyers a tax credit of up to $ 15,000.
● Increase the childcare tax credit from an effective US $ 2,100 to US $ 8,000 per dependent child.
● Eliminate the increase in the base for inherited property.
● Eliminate tax-exempt real estate exchanges.
● Increase estate and gift tax rates by an unspecified amount (now 40%).
● Decrease the inheritance tax exemption from $ 11.58 million to $ 3.5 million and the gift tax exemption from $ 11.58 million to $ 1 million.
● Add tax credits for specific climate change mitigation activities, such as: B. credits for electric vehicles, credits for the efficiency of residential buildings, credits for solar investments as well as for renters, low-income earners and taxpayers aged 65 and over.
An increase in estate tax promotes tax avoidance both because gifts made while you were alive will not be taxed on your death, whether or not you were taxed at the time of the gift, and because there are a number of techniques that can these benefits take advantage of the fact that income tax laws differ from gift and estate tax laws to lower estate tax. It also raises concerns about the impact on family wealth that are relatively illiquid, such as: B. a family business or a family farm. Although the emotional response is large, its impact is small, as only about 3% of the land has more than 50% of its value tied up in a family farm or business.
Until recently, the policy was to increase the exemption amount from $ 1 million in 2000 to $ 11.58 million in 2020, lower interest rates, and (hopefully) fill the gaps. The Biden proposal reverses this trend by dramatically reducing the tax exemption to $ 3.5 million and by making tax rates implicit but not precise. It could also be seen as closing the increased capital gains from the gap in terms of inherited real estate.
The effect of the Biden proposal is not clear, but it is likely that the savings (to avoid the effects of an accidental transfer) and charitable donations will be reduced so that this deduction is used to reduce donation tax on transfers ; and it can have an indirect boost to the economy and government revenues. Additionally, there will be a deluge of planning to evade the tax for clients with incomes over $ 400,000 and assets of $ 3.5 million.
Whether any of these increasingly complex plans will work remains to be seen as the details have not yet been finalized. I assume that in any plan there will be opportunities to unravel the measures before the end of 2021 in case the changes to the tax law should accidentally occur. So stay tuned …