Page 24 - Investment Advisor July/August 2021

TAX TIME

By Bernice Napach and Roger Wohlner

An Insider Provides a Reality Check on

Biden’s Tax, Infrastructure Plans

Also, how to help clients deal with the potential capital gains increase.

he Biden administration’s plan
to hike the capital gains tax for
Tthose earning more than $1 mil-
lion from 20% to 39.6% is not likely
to pass Congress, according to Charles
Schwab’s representative in Washington.
“Very few people think that [39.6%]
will be the outcome,” said Mike
Townsend, vice president for legislative
and regulatory affairs at Charles Schwab
Corp., who spoke about Biden’s legisla-
tive agenda on the company’s midyear
market outlook webinar.
What is possible, however, is a capi-
tal gains tax hike to 28% or 29% — the
“sweet spot,” said Townsend. Those
earners also would be subject to the
additional 3.8% Medicare surtax they
already pay on capital gains.
Biden’s plan would raise the capital
gains tax for those earning $1 million or Under current law, the exemption is INFRASTRUCTURE ODDS
more to the same rate they would pay $11.7 million for individuals and $23.4 Townsend said bipartisan support for an
on their income, which would increase million for couples. infrastructure bill — Biden’s American
from 37% to 39.6%, the rate that pre- Townsend doubted that any capital Jobs Plan — “looks less and less like-
vailed before the sweeping tax overhaul gains tax increases being retroactive to ly.” Although the administration and
enacted in 2017. April 28, when Biden released the pro- Republicans reportedly have moved
posal. “That’s getting a lot of attention … closer on the size of a bill — near $1 tril-
STEP-UP BASIS CHANGE? but not a lot of support on Capitol Hill,” lion — they still differ widely on how to
Townsend was even more pessimistic he explained. pay for the plan.
about passage of Biden’s proposal to end He stressed that Biden’s capital Biden wants to finance the plan with
the step-up in basis for inherited assets, gains tax proposals contained in his an increase in the corporate income tax;
which would be subject to capital gains American Families Plan and his cor- Republicans want to redirect unused
tax at the time of death, rather than after porate tax proposals, included in his coronavirus relief funds for state and
the sale of assets. One million dollars American Jobs Plan, are just proposals, local governments plus user fees paid by
would be exempt from taxes for indi- which require congressional action to individual taxpayers, the latter violat-
viduals and $2 million for couples, plus become law. That will take weeks dur- ing Biden’s pledge to not raise taxes on
another $250,000 for each for a home. ing which the two plans could be com- those earning $400,000 or less.
“It’s not at all clear that they can bined into one bill or divided up into Democrats, some of whom would like
get that through Congress,” he said, smaller bills, said Townsend. to incorporate bonds and user fees as Samuel Corum/Bloomberg
adding that it could instead lower the “Congress will do the work and revenue generators, could pass some
current exemption from the estate Congress will make changes along the version of an infrastructure bill through
tax, which has a maximum 40% rate. way,” he said. reconciliation, but there is dissension

22 INVESTMENT ADVISOR JULY/AUGUST 2021 | ThinkAdvisor.com