With the Build Back Better bill currently on at least temporary hiatus, practitioners at year’s end are in a holding pattern regarding the need to ”bone up” on new legislation. That may come later in the new year, but it will likely be a diminished version of the Biden administration’s original proposal.
In a “Dear Colleague” letter on Monday morning, Dec. 20, 2021, Senate Majority Leader Chuck Schumer indicated that a revised version of BBB will be brought to the Senate floor early in the new year, according to Marc Gerson, tax department chair at Miller & Chevalier, and former majority tax counsel to the U.S. House Committee on Ways & Means.
“This is a relatively short time frame for Democrats to recover from the political fall out of [Sunday, Dec. 19, 2021] and construct a package that is acceptable to Sen. Manchin and to House progressives,” he said. “As the size of the package ultimately shrinks, Democrats will need to prioritize which spending programs remain and which will be jettisoned — Sen. Manchin’s emphasis on the Child Tax Credit may in fact require most of the other spending priorities to be deferred, increasing the risk that it will lose support in the House. There are also numerous tax provisions, such as the SALT deduction cap, that need to be resolved and, ultimately, a smaller spending package will reduce the need for tax increases to fund it.” (For more on which provisions have a better chance of surviving, click
“What we’ll get will be a very paired-down bill,” agreed Tim Speiss, a partner in the personal wealth advisory practice at Eisner Advisory Group LLC. “We thought we’d be further along at this point.”
Speiss’s group, which advises hedge funds, private equity funds, individual family offices and entrepreneurs, has been doing live case studies, still under current law, with a focus on year-end planning.
There are two aspects of any forthcoming legislation that they believe still apply: that any legislation won’t be retroactive, and that rates will increase, rendering the classic scenario for end-of-year moves.
“Our clients are accelerating income, taking a serious look at selling investments now under the current capital gains rate of 20%, rather than waiting for an increase,” he said. “The trick is to be defensive, but opportunistic at the same time. The top capital gain rate has been proposed to jump to 25% from its current 20%, with the individual rate going to 39.6%. So we’re talking about recognizing capital gain and accelerating income around equity compensation. Exercising stock options is especially resonating with our clients. Now is the time to take income in the face of next year’s almost certain increase in rates.”
Estate planning has also generated an increase in activity for Speiss’s group. “It’s been very vibrant,”he said. “There’s been a lot of work this year establishing trusts for clients making gifts into trusts under the current estate tax regime with its exemptions in place.”
Not everything is tax legislation-driven, Speiss noted. “A lot of our corporate clients are taking advantage of low rates to refinance. Selling at a high price and then taking advantage of low interest rates on refinancing of debt have been attractive to our clients,” he said.
There has been a huge amount of planning made necessary by people moving from one state to another, according to Speiss. “Much of this has happened in the past two years due to COVID. So many moved from the state of their office location to a state with lower taxes,” he said. “Or they moved their businesses along with themselves. Meanwhile, higher-tax states are trying to retain people. All of these have tax implications that clients need to know.”
“A lot of what’s happening now will continue into 2022,” Speiss predicted. “Tax legislation will be very prominent again, with very far-reaching provisions to learn and apply.”
