What You Need to Know
- Personal, trust and estate tax increases should happen in the coming months, experts say.
- Taxable estates greater than $10 million would be taxed at 50%, amounts greater than $50 million at 55%,
- Raising the top corporate tax rate to 28% may be something many businesses can live with.
President Joe Biden and members of Congress “are already foreshadowing personal, trust and estate tax increases in the coming months,” according to Alison Hutchinson, managing director and resident tax expert at Brown Brothers Harriman.
Where these proposals end up, however, is negotiable.
As Biden noted in early April in unveiling his comprehensive proposal, The Made in America Tax Plan, to increase investment in infrastructure by, in part, boosting the corporate tax rate: “Debate is welcome. Compromise is inevitable. Changes are certain.”
While it appears that a wealth tax as put forth by Sen. Elizabeth Warren, D-Mass., “is off the table,” Hutchinson told Investment Advisor in early April, “changes to the way the income tax basis of assets are taxed (or not taxed) at death, as well as increases to personal income tax rates on wealthy individuals and changes to the taxation of estates and trusts, are all very much on the table.”
Sen. Bernie Sanders, I-Vt., released in late March the For the 99.5% Act, legislation that would restore the estate tax exemptions to the 2009 thresholds of $3.5 million per individual and $7 million per married couple from the current exemptions of $11.7 million and $23.4 million.
In a shift, larger estates would be subject to higher tax rates. The current 40% tax rate would be raised to 45%. Taxable estates greater than $10 million would be taxed at 50%, amounts greater than $50 million at 55%, and amounts greater than $1 billion would be taxed at 65%, according to the Joint Committee on Taxation.
The same rates would apply for gift taxes, for which the threshold would be lowered to $1 million.
“Introduction of this legislation is a big step forward to significantly strengthening the estate tax,” Frank Clemente, executive director of Americans for Tax Fairness, said in a statement.
During an early April Senate Budget Committee hearing, titled “Ending a Rigged Tax Code: The Need to Make the Wealthiest People and Largest Corporations Pay Their Fair Share of Taxes,” Sanders said that his bill would “demand that the families of the millionaire class not only not get a tax break but start paying their fair share of taxes.”
Sanders also introduced the same day the Corporate Offshore Tax Dodging Prevention Act, “legislation that would prevent corporations from shifting their profits offshore to avoid paying U.S. taxes and would restore the top corporate rate to 35%, where it was before [Donald] Trump became president.”
Hutchinson noted that “It may be easier for interested parties to negotiate for changes to the estate/gift tax rate (currently 40%), or the exemption from estate/gift tax (currently $11.7 million), where they have a number to debate. The policy negotiations around changes to the income tax basis rules are much more nuanced and complex, and they will take longer to reconcile or could be shelved indefinitely in the interest of time.”