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What Advisors Think of Biden's $1.5T Tax Plan

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President Joe Biden unveiled early Wednesday his $1.8 trillion American Families Plan, which is funded in part by $1.5 trillion in tax hikes on the wealthy and includes an increase the capital gains rate, as well as an end to the step-up in basis tax break on inheritances, and the carried interest tax break used by private equity and hedge fund managers.

Biden will tout his tax plan — which would also raise the top personal income rate, extend the enhanced child tax credit, and require IRS tax preparers to be regulated — Wednesday evening during a joint address to Congress.

Political watchers and advisors were quick to weigh in on Biden’s plan.

Biden will “’go big tonight, betting that the public will continue to support his huge new spending and taxing ‘the rich,’” Greg Valliere, chief U.S. strategist for AGF Investments, said Wednesday morning in his Capitol Notes email briefing. “What strikes us is that the Republicans can’t seem to demonize Biden; he’s likeable and low-keyed, just what most voters wanted after four years of Donald Trump.”

Valliere added that “despite his veer toward the left, Biden simply doesn’t look like a wild-eyed socialist, and the Republicans who are warning about massive budget deficits have a credibility issue; they didn’t care about red ink for the past four years.”

Biden “has a good chance to win many of the proposals he will unveil tonight,” Valliere opined.

Ironically, Valliere said, Biden’s biggest obstacle is “a handful of Democrats who probably will succeed in scaling back the president’s spending and tax hikes, which the public generally supports.”

Early handicapping, according to Valliere, “is that Biden will get about $1.7 trillion in infrastructure spending instead of the $2.25 trillion he’s seeking; and he’ll get no more than $1 trillion in the American Families Plan, not the $1.8 trillion he will seek tonight. Still, nearly another $3 trillion in spending meets our definition of ‘going big.’”

Andy Friedman, founder and principal of The Washington Update and a former tax attorney, told ThinkAdvisor Wednesday in an email that “without minimizing the severity of these changes, what struck me was the administration’s restraint” in the American Families Plan.

“The tax plan Biden put forth during the campaign had a number of items not included in today’s proposal, such as the imposition of Social Security tax on wages over $400,000, and a drastic reduction in the estate tax exemption,” Friedman said.

“Congress might add these or other provisions to Biden’s proposal,” Friedman added. “For instance, a number of senators are pushing for a significant reduction in the estate tax exemption, as well as an increase in the estate tax rate.”

Bottom line: “A tax bill almost certainly will pass,” Friedman said, potentially through reconciliation.

Through the Financial Planning Association, we asked advisors what they thought of the tax plan. Here’s what they said.

Scott Bishop, Executive Director of Wealth Solutions, Avidian Wealth Solutions:

It will be a battle between the Republicans (and Red State Democrats). Republicans won’t want a permanent welfare state and large tax increases while some Democrats voiced their concern that merely extending the enhanced CTC for four years is not enough.

Last week, members of both chambers issued a joint statement imploring the president to make the enhanced credit permanent, explaining, “Expansion of the child tax credit is the most significant policy to come out of Washington in generations, and Congress has an historic opportunity to provide a lifeline to the middle class and to cut child poverty in half on a permanent basis.”

The American Family [Plan] will make those changes permanent. Thus, the [child and dependent care tax credit] would remain fully refundable, and at a maximum credit of $8,000.

In the news after the talk tonight will not be the new social programs or tax credits, but rather the tax increases required to pay for that $1.8 trillion in spending and lost tax revenue. Consistent [with] Biden’s campaign-trail promises, the administration is moving forward with significant targeted tax increases on those earning more than $400,000 annually.

It is critical to note that at this time, the president has not committed to making the increases effective Jan. 1, 2022, leaving open the possibility that the proposals … could be made retroactive to the beginning of 2021. Not knowing this tax treatment until possibly late in the year will make it very difficult to tax-plan. MANY of my clients are looking to sell appreciated assets and even business before the tax plan takes effect.

Bottom line: with the national debt surpassing $28 trillion and the debt-to-GDP ratio already above 130%, will moderate Democrats be on board for these tax increases that may or may not be good “pay fors” for this huge spending increase?

Robert Braglia, President, American Financial & Tax Strategies Inc.:

Devastating to the economy. When you have the greatest economic expansion in most Americans’ lifetime going, WHY WOULD YOU CHANGE A THING?

It will not raise a penny of revenue because economic activity will slow down, but they must know that (former President Obama even acknowledged that in his first presidential campaign’s debate). It is to punish the most successful, so-called fairness. In other words, to punish those who are creating the most new jobs.

Of course, it won’t even do that. The super-rich have armies of lawyers and accountants to work around it. It is the emerging wealthy who, once again, are caught in the middle, those who have worked, struggled and sacrificed for decades to build something, now to be told they must be punished.

NOTHING good will come of this.

Leon LaBrecque, Chief Growth Officer, Sequoia Financial Group:

I think [this capital gains plan] hits a lot of people because it changes the paradigm of how we invest assets. You’re going to have some people wanting to sell, some people not wanting to sell. You’re going to have an enormous amount of volatility at the end of the year if this is an effective date of 2022. I see a whole bunch of things happening with this.

I’m going to have folks over the AGI of $1 million who are going to say ‘I better get rid of my stuff now at 23.8% instead of 43.4%.’ If I have clients with some great, big built in gains, I’m going to say, ‘Look, it’s time to harvest the gain, get rid of it.’”

I’m concerned that there’s also going to be some tax paralysis. I see this with my clients right now who have short-term capital gains and they won’t sell their stock because they’re going to pay 43.4%; in this case they’re going to pay 37% plus 3.8% — so they’re talking roughly 40.8%. I tell them, ‘don’t sell your gains stock right now for a short-term gain, let’s hold it for a long-term; let’s do a hedge or something. Let’s not get in trouble with taxes. Why do we want to give up roughly 40% of our gain?’

Joshua Hargrove, Insight Wealth Partners, Plano, Texas:

Politics aside, should these proposals prevail in Congress, financial planners will be more valuable than ever. Creative strategies to reduce taxes and transfer wealth will most certainly evolve. Insurance products, such as annuities, whole life, and [variable universal life] have suddenly become even more alluring to assuage taxation for wealthier individuals.

Glenn Downing, co-founder and principal, CameronDowning, Miami:

Full socialist agenda on display. Keep your children in government-run schools 2 years earlier and then up to 4 years later, when they can be indoctrinated. Even feed them. Replace the family with the state. Pure redistribution of wealth.

Question: under President Trump we had less than 4% unemployment — the lowest we’d ever seen. Whatever he did works! Why not simply continue those policies?

Answer: because the people in Washington now want power — power to dictate to the nation how we should live.

Pictured: President Joe Biden. (Photo: Stefani Reynolds/Bloomberg)

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