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As part of his campaign platform, Democratic Presidential nominee Joe Biden has released a tax plan that would significantly increase taxes on high net worth individuals. Although a campaign platform is only a “rough draft” that likely will never be fully implemented, it provides insight into the intended direction and changes that may be coming. Of course, it is Congress that writes tax and budget bills, and thus the House and Senate will have a determinative say. If Biden is elected, tax policy outcomes will heavily depend on whether the Democrats capture a majority in the Senate (and the size of the majority).
In general, the available information about these proposals is limited. It’s clear that the overall plan will include a number of complete or partial repeals of President Trump’s 2017 Tax Cuts and Jobs Act (TCJA).
It is also unknown when these proposals would take effect. It is commonly accepted that tax law changes passed late in 2021 can be expected to be retroactive to the beginning of calendar year 2021. Taxpayers looking to plan around these changes should consider acting before the end of calendar year 2020.
Below is a list of the main proposals affecting high net worth individuals:
Lower the $11.6 million gift and estate tax unified credit back to $5.8 million immediately (under current law, the exemption decreases to $5.8 million in 2026).
Subject wages above $400,000 to the 6.2% Social Security payroll tax. Self-employment income would be subject to this tax as well (self-employment income over $400,000 would be subject to the 12.4% self-employment tax). This creates a “donut-hole” in how these taxes apply: individuals would subject to taxes on wages/self-employment from $0 to $137,700 and from $400,000 upwards.