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.
