6 Tax Increases Biden Has Proposed

Are higher taxes coming to go along with inflation? It sure looks that way. And while some of the spin is being directed at the Billionaire’s tax—that actually kicks in at a tenth of a billion dollars—there are plenty of other tax hikes proposed for more modest earners too. Here’s what is in store for you if the Biden administration’s raft of ambitious tax hikes becomes law the way the Biden administration hopes they will.

1. Increasing top tax rates for individuals. The top bracket for individuals was 39.6% for many years, until Trump and a cooperative Congress lowered it to 37% starting in 2018. But President Biden wants it back up, from 37% to 39.6%. The 2.6% rate hike would kick in at $450k for joint filers and $400k for single taxpayers.

2. Capital gains taxed as ordinary income over $1M. How about long term capital gains? Currently, the highest capital gain rate is 20%, but you must add the 3.8% Obamacare tax. So that makes the total 23.8%, which is still vastly better than 37% or 39.6%. However, one of the President’s proposals is to tax long term capital gains and qualified dividends as ordinary income if your taxable income exceeds $1m. Say you make a big gain, having a rate jump from 23.8% to 39.6% is going to hurt. Of course, most people have to add their state income tax on top of that, such as California’s 13.3%.

3. Repeal of step-up in basis. One of the biggest changes the President hopes to make would be tax on death. Under present law, inherited property receives a full fair market value tax basis on death. The step-up in basis provides tax benefits for everyone passing down appreciated assets, including real estate, stock, family companies and more. For generations, assets held at death have received a stepped-up basis—to market value—when you die. Small businesses count on this. The proposal is to repeal step up in basis. For generations, everyone gets a step up in basis for income tax purposes when they die. That way your heirs can sell property they inherit and not have to pay income tax on the increase in value during the decedent’s life. But that long coveted step up in basis would go away under the Biden administration’s plan. There would be a $5m exclusion from gain on property transferred by gift, and this would be cumulative. But once you use that up, the days of step in basis would be gone, if the provision passes.