What You Need to Know
- We’re not going to see a repeal of stepped-up basis, Friedman said.
- The retirement plan proposals are entirely new.
- The House Democrats' plan eliminates grantor trusts.
President Joe Biden’s American Families Plan will pass, however, “it’s going to be much, much smaller, maybe in the order of $1.5 trillion to $2 trillion,” Andy Friedman, founder and principal of The Washington Update and a former tax lawyer, said Tuesday.
The Democrats, Friedman stated on a webcast held by American Century Investments, “can pass the legislation only if all 50 Democrats in the Senate support it.” However, “a couple of them,” including Sen. Joe Manchin, D-W.Va., have balked at the $3.5 trillion price tag. “This is going to mean we get a cutback in order to satisfy him.”
Biden’s American Families Plan would “broaden social programs to an extent we have not seen since the New Deal,” Friedman said, and is going to be supported by tax increases.
The tax-writing House Ways and Means Committee fired its opening salvo Monday, which holds to Biden’s promise to not increase taxes for those with taxable income below $400,000.
Under the committee’s plan, most of the provisions wouldn’t be effective until next year, Friedman explained.
“I think we will see the increase in tax rates for families with income above $400,000,” he said.
Friedman highlighted the following notable provisions in House Democrats’ plan.
Capital Gains Taxes
The House Democrats’ plan would increase the top capital gains rate from 20% to 25%.
Biden, Friedman said, had proposed raising the top capital gains rate to an ordinary income rate of 39.6%.
In the House Democrats’ plan, “this is a situation where the effective date is as of yesterday. The Committee is concerned that [with] an effective date of 2022 there would be a selloff in the markets as everybody rushes to beat that date. So they gave us an effective date of yesterday eliminating that possibility.”