Joe Biden’s Tax Plan: What Has and Has Not Changed

When a new president takes office, tax planners and financial planners sift through campaign promises as if they were tea leaves, trying to predict what laws will change and how to adjust their planning accordingly. President Joe Biden has been in office just over a year, and it’s worth taking a look back to see what tax changes were anticipated, what actually materialized, and what’s next for Joe Biden’s tax plan. Most of the proposed changes to gift and estate tax have not become a reality.

Build Back Better: What Might Have Been

Though the administration did manage to get some of its hoped-for legislation passed in 2021, its signature legislation, the Build Back Better Act (BBB) passed the House before dying in the Senate. The passage of BBB would have funded a variety of programs through increased taxes on corporations and individuals with the highest income.

One proposal for Build Back Better would have rolled back many of the tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA). Among other measures, BBB would have raised the corporate tax rate that was slashed by TCJA. Just how much the rate would have increased is unclear, as the increase did not make it into the final version of the House bill. The version of the bill that did pass the House contained a 15 percent minimum tax on large corporations and a 15 percent global minimum tax. However, these ideas could very well be introduced in a future bill.

Another measure that was included in the House Bill was a so-called “wealth tax” or “billionaire’s tax” that would have targeted the wealthiest Americans. Aspects of this tax included proposed surcharges on corporate stock buybacks as well as a 5 percent surtax on incomes above $10 million and an 8 percent surtax on incomes above $25 million. While there was some support for the wealth tax in the Senate, it’s not clear whether such a tax would have made it into a final bill. It is unlikely that there would have been sufficient Senate support for the passage of that tax.

As of right now, the future of Build Back Better is unclear. It seems probable that Democrats will continue to try to pass components of the bill in a piecemeal fashion.

What Tax Legislation Has the Biden Administration Passed?

With every change of presidential administration, there are concerns about major tax overhaul, but not much has actually come to pass in the past year. The tax legislation that has passed has largely been connected with COVID-19 stimulus — specifically, the increased Child Tax Credit. The credit was larger in amount and available to more families in 2021. A major feature of the legislation was that half of the credit was payable in advance in monthly installments, giving thousands of families a regular infusion of cash when they needed it most.

There were hopes that if the changes to the Child Tax Credit were well received, they might become permanent. However, concerns about the cost have scuttled plans to do so for the time being.

Tax Planning for 2022 and Beyond

While many of the tax changes proposed on the campaign trail and in the first year of the Biden administration did not come to fruition, it is still important to stay alert to the evolving tax landscape.

For example, in 2022, cash charitable donations will once again be limited to 60% of adjusted gross income (AGI), as they were prior to 2021. The cap was lifted in 2021 to promote charitable giving, allowing taxpayers to donate and deduct up to 100% of AGI.

Build Back Better originally included numerous estate tax proposals, nearly all of which were ultimately stripped from the bill. However, estate tax changes are on the horizon even without new legislation. Many provisions of the Tax Cuts and Jobs Act are due to sunset after December 31, 2025. These include the eventual return of the lifetime transfer tax exemption amount to pre-2018 levels (though adjusted for inflation).

Individuals and couples should consider taking advantage of the high exemption amounts while they last; the per-person amount is $12,060,000 for 2022. Large gifts made while exemptions are high will not have a negative impact on estate tax for individuals who die after the lifetime exemption amount decreases. If you are considering making significant transfers of assets for the benefit of family members, there may be no time like the present.

If you have questions about planning to reduce the tax burden on your estate or family, we invite you to contact Gudorf Law Group.