Potential Tax Changes in House Version of Infrastructure Plan

On September 15, 2021, the House Ways and Means Committee approved certain tax provisions associated with President Biden’s $3.5 trillion infrastructure spending proposal and has recommended rolling back some recent tax cuts to pay for the plan.

There is still a long way to go before any of these become law. While it is likely that the Democrat-controlled House will pass these proposals, the Senate Finance Committee will have its own proposals. The differences between the two will need to be hammered out and there is no guarantee that the Senate will pass any Committee-agreed proposals. Nevertheless, it is helpful to examine what the House proposals include:
 

  • Lower the U.S. corporate tax rate to 18% (currently 21%) for the first $400,000 of income, subject to phase out when income hits $10 million. The 21% rate would be retained for income between $400,000 and $5 million but would be increased to 26.5% on income in excess of $5 million. This would take effect for tax years beginning after December 31, 2021.
  • Increase the top individual income tax rate from 37% to 39.6% after 2021 for joint filers with taxable income over $450,000 ($400,000 for single filers). Trusts and estates will be taxed at the top rate on income over $12,500.
  • Increase the current top rate for capital gains and qualified dividends from 20% to 25%, effective for sales taking place and dividends received after September 13, 2021. Binding sale contracts as of that date would fall under the old law. It appears President Biden’s proposal to tax certain taxpayers at the 39.6% rate is off the table, for now.
  • Impose a 3% surcharge on individuals who have modified adjusted gross income in excess of $5 million beginning in 2022. The surcharge will apply to trusts and estates with adjusted income in excess of $100,000.
  • Disallow certain “excess business losses” for individuals, requiring them to carry forward such losses to the next year.
  • Cap the 20% Section 199A deduction that certain owners of partnerships, LLCs and S Corporations enjoy under current law once taxable income hits $500,000 for joint filers ($400,000 for single filers) and $10,000 for trusts and estates.
  • Reduce the federal estate and gift tax exclusion from its current $11.7 million to $5 million (indexed for inflation) for decedents dying and gifts made after 2021.
  • Impose severe restrictions on the use of Grantor Trusts as an estate planning technique, generally for trusts created or funded after the enactment of the legislation.

 

If enacted, the proposals would impact myriad other areas including international provisions, carried interest, retirement plans, Section 1202 stock and more.
 
Your WBL team of advisors will continue to monitor the proposals and movement within Congress. Contact any team member if you have questions or comments.

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