A look at Biden’s (early) tax policy proposals

Theresa Marx

May 03, 2021

How might Biden's proposals impact your taxes?

On April 28, 2021, President Joe Biden laid out some of his tax policy proposals in connection with his American Families Plan. While it appears that his previously announced American Jobs Plan would be paid for primarily with corporate taxes, his American Families Plan looks to individual taxes as a source of funding. Many of the proposed changes were part of his campaign platform and likely do not come as much of a surprise.

Among the most notable changes are the following:

  • Returning the top individual income tax bracket to 39.6% for those with income of more than $400,000
  • Increasing the tax rate on capital gains and dividends to 39.6% for households making more than $1 million
  • Eliminating step-up in basis on inherited property for gains in excess of $1 million, but including protections for family-owned businesses and farms where the heirs continue to run the business
  • Eliminating the ability of hedge funds and private equity partners to pay tax on their carried interests at the capital gains rate
  • Eliminating the ability to defer capital gains from the sale of real estate with a 1031 exchange for gains greater than $500,000
  • Increasing funding for the Internal Revenue Service in an attempt to improve enforcement

There were also some often-discussed items that were noticeably missing from his proposals, including:

  • Decreasing the estate and gift tax exemptions
  • Increasing the current $10,000 limit to the state and local tax (SALT) deduction

The details on these proposals are limited, and Biden has indicated that he is willing to negotiate with Congress, where Democrats hold a very thin majority. It is also currently unclear how Biden’s proposals may affect the viability of previously introduced legislation (e.g., The “For the 99.5% Act” proposed by Senator Bernie Sanders and discussed in an earlier blog). The only clarity at this point is the likelihood that these are just the first of many tax proposals that we will see from Washington in the coming months.

For our insights into the implications of the President’s plans on the economy and investment markets, read “Biden’s opening bid: Initial thoughts on an ambitious agenda.” 

Theresa Marx is a senior wealth strategist for CIBC Private Wealth Management in Chicago, with more than 17 years of industry experience. In this role, she is responsible for developing integrated wealth management solutions and providing comprehensive estate and financial planning services to high net worth clients.