By Scott Moser

President Biden was elected on a platform that included broad tax increases. More recently, the President has indicated a willingness to compromise on his election goals for tax increases in order to obtain bipartisan agreement. It appears the President is using one of Trumps negotiating tactics of asking for twice the intended target in order to provide room to negotiate a more modest package. While this tactic provides a useful negotiating path, it leaves tax planners in the precarious position of predicting which proposed tax increases will prevail and which ones will be sacrificed in the pork grinder to pass the new legislation.  Since the first set of proposals includes a retroactive implementation date, the stakes could be significant for high income taxpayers.
Here are the more significant highlights from the President’s recently released Green Book proposals for individuals:
  • Increasing income tax rates for those with the highest incomes (generally taxable income above $400,000); 
  • Eliminating the carried interest preference and the like-kind real estate preference for those with the highest incomes;
  • Taxing capital income for high-income earners at ordinary rates to the extent income exceeds $1 million. The Green Book says that, "This proposal would be effective for gains required to be recognized after the date of announcement."; Observation. It appears that the "date of announcement" is April 28, 2021, the date that the Administration first detailed this proposal
  • Treating certain transfers of appreciated property by gift or on death as realization events (so income tax is due at the time of transfer);
  • More generous child tax credits, an expanded earned income tax credit, expanded child and dependent care tax credits, and more generous premium tax credits;
  • Eliminating all fossil fuel tax subsidies;
  • Expanding tax incentives that encourage clean energy sources, energy efficiency, carbon sequestration, and electric vehicle adoption;
  • Investments in taxpayer compliance that would provide the IRS with additional resources and information (more IRS audits).
You probably noticed the retroactive date that would apply to capital gains. Since Washington State has enacted a 7% capital gains tax effective on 1/1/2022,  it’s possible that 2022 gains for taxpayers with income over $1.0 mil. will be a combined 50.4% plus the impact of any deduction phase outs. Business owners contemplating a sale in the next 5 years should consider taking action in 2021 as applicable taxes could more than double in 2022. 
A number of gift and estate tax increases are also being proposed which we’ll cover in future installments. For those that have been procrastinating in updating their tax & estate plans, the warning bells are sounding off!