White House Unveils Plan to Help American Families By Increasing Taxes on the Wealthy
On April 28, 2021, the Biden administration unveiled a $1.8 trillion plan to provide assistance to middle- and low-income families that would be largely funded by tax increases on wealthy Americans.
The plan, called the American Families Plan, focuses on tax measures that would affect the wealthiest individuals, including a proposal to increase the top individual income tax rate to 39.6%. This rate had been reduced during the Trump administration to 37%.
The president’s plan would also increase the capital gains rate on households with income over $1 million to 39.6%.
As described on a fact sheet released by the White House, the plan would amend the estate tax to eliminate “the loophole that allows the wealthiest Americans to entirely escape tax on their wealth by passing it down to heirs.” The plan would end the practice of “stepping-up” the basis for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions) and taxing the gains if the property is not donated to charity. The fact sheet states that unspecified “protections” will be included so that family-owned businesses and farms that are passed down to heirs who continue to run the business will not be subject to the estate tax.
The plan also calls for a substantial increase in funding for the IRS to provide additional enforcement resources that would focus on high-income earners as well as large corporations, businesses and estates. The White House estimates that this investment would raise $700 billion over 10 years. Moreover, the plan would impose stricter reporting requirements on financial institutions that would subject investment and business activity to reporting requirements similar to those applicable to wages.
Other revenue raisers include the permanent elimination of the carried interest provision, ending the like-kind exchange rules for gains on real property of more than $500,000, and permanently extending the current excess business loss limitation.
The revenue raised would fund a series of family-focused tax relief provisions, including:
- Extending expanded Affordable Care Act credits in the American Rescue Plan
- Extending the child tax credit increases introduced in the American Rescue Plan through 2025 and making the child tax credit fully refundable
- Permanently increasing tax credits to support families with child-care needs and
- Making the earned income tax credit expansion for childless workers permanent
The plan singles out some tax preparers as both responsible for high error rates in tax returns and crucial to assisting taxpayers properly claim the potentially expanded credits and calls for Congress to pass legislation that would give the IRS the authority to regulate paid tax preparers.
To view the White House’s fact sheet on the American Families Plan, click here, and please don’t hesitate to connect with a member of MFA’s Tax Team to review how these changes may impact your individual tax situation.
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