President Biden’s tax proposals for Fiscal Year 2024 Budget are at the center of what the White House estimates is a $3 trillion deficit-reduction plan. They will be immediately rejected by Congressional Republicans. However, the ideas set up Democrats’ approach to the debt-ceiling fight later this year, as Republicans are gearing up to ask for spending cuts.
A major change would almost double the rate of the capital-gains tax, and applying an additional surcharge to fund Medicare, which would mean taxes on investments could rise to almost 45%. In addition, the changes are targeted at businesses and high net worth individuals.
Bloomberg’s recent article entitled, “In Biden’s Tax-the-Rich Budget, Capital-Gains Rates Near 45%,” examines the details of the tax proposals in the budget request that the White House released recently.
Capital Gains. The budget proposal would jump the capital-gains rate to 39.6% from 20% for those earning at least $1 million to equalize the taxation of investment and wage income. President Biden also wants to up the 3.8% Obamacare tax to 5% for those earning at least $400,000 to support the Medicare Trust Fund. As a result, the richest would pay a 44.6% federal rate on investment income and other earnings. The plan also calls for taxing assets when an owner dies. This would end a tax benefit that let the unrealized appreciation go untaxed when transferred to an heir.
Corporate Taxes. Trump’s 2017 corporate tax cut would get significantly rolled back, bringing the top rate to 28% from 21%. The proposal also calls for increasing the taxes U.S. companies owe on their foreign earnings to 21%, doubling the 10.5% included in Trump’s tax law.
Carried Interest. The carried-interest tax break used by private equity fund managers to lower their tax bills would be struck under the Biden plan. Under current law, investment fund managers can pay the 20% capital-gains rate on a portion of their incomes that would otherwise be subjected to the 37% top individual-income rate.
Rich Retirement Accounts. The plan would close a loophole that allows the wealthy to accumulate savings in tax-favored retirement accounts intended for middle earners. In addition, Biden would limit the amount taxpayers with incomes over $400,000 can hold in Roth individual retirement accounts.
Estate, Gift Taxes. Bolstering the tax rules on estate and gift taxes would make the system harder for the wealthy and trusts to avoid taxes. Read more about how to avoid estate taxes in our article: Do QTIP Trusts Help avoid Estate Taxes?
While this is a proposed budget, it’s important to safeguard your estate plan against changes in tax laws. Request a consultation with our Las Vegas estate planning team to ensure your assets are protected now and in the future.