The House Ways & Means Committee has released draft legislation of individual tax hikes they propose to pay for the $3.5 trillion social policy budget plan under consideration. It includes major revisions to the estate tax, capital gains taxes and the way retirement accounts are taxed. The top capital gains tax rate would be 25%. The estate tax would revert to pre-Trump levels. Roth IRA conversions, including backdoor Roth IRAs, would be prohibited for high earners.
Who’s rich for purposes of this legislation? In most cases, it’s a married couple with income over $450,000, singles with income over $400,000. But beneficiaries of trusts and estates (that can be a special needs child) would also feel the pain as trusts and estates would face the new top income tax rate of 39.6% at just $12,500 of income. After-tax contributions to workplace retirement plans would be prohibited, no matter your income level. Bottom line: Everyone needs to pay attention.
The official summary of the funding priorities , the 881-page text, and the cost estimates are available on the Committee web site. “The window to prepare your plan is quickly closing,” warns Pamela Lucina, Northern Trust Chief Fiduciary Officer. When would these changes take place? In most cases, it would be as of January 1, 2022, for tax year 2022. The capital gains changes would be effective today.
The House Committee is scheduled to discuss these revenue raisers in hearings on Wednesday. The Senate has its own ideas. And then there’s an attempt at a reconciliation bill that would leave out the Republicans.