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October 21, 2021 at 02:55 PM
What You Need to Know
- President Joe Biden’s $3.5 trillion spending package will shrink to around $2 trillion.
- Retroactivity of the capital gains and dividends could stay in the package.
- Democrats and Republicans don’t agree on the mandated auto-IRA provision in the House bill.
A lowering of the estate tax exemption and changes to the treatment of capital gains and dividends are likely to survive the spending bill negotiations in Congress, according to Michael Townsend, director of Legislative and Regulatory Affairs for Charles Schwab.
Earlier this year, President Joe Biden called for ending the step-up in basis, Townsend said. “That proved to be too controversial on Capitol Hill.”
Instead lawmakers went an easier route: “Just lower the exemption amount,” Townsend relayed.
The current exemption amount from the estate tax is $11.7 million, Townsend explained Wednesday during Schwab’s Impact conference. That amount is scheduled to sunset at the end of 2025, he continued, but “what the proposal and the House would do is accelerate that sunset to the end of 2021, which would take the baseline number back to $5 million.”
Adding in the inflation adjustments “will take it right around $6 million per person for the exemption amount,” he continued. “My sense right now is that is something that has pretty strong support and is a very top candidate for being included in a compromise bill.”
On the capital gains side, “the idea is … to take the capital gains top rate to 25% for people earning more than $400,000 per year and making that retroactive to Sept. 13, which is the date of the introduction of the bill.”
Under the current proposal, “gains realized prior to Sept. 13 will be taxed at top rate of 20%; gains realized after that date would be taxed at a top rate of 25% for folks earning more than $400,000 per year. Now could that change? Yes, it could change; that is still being negotiated.”
