One thing’s for sure: President Joe Biden proposes tax hikes for wealthier taxpayers and for corporations, as well as unspooling other parts of 2017’s tax reform. What tax laws will change first, especially as the economy continues to struggle under the pandemic?
“Estate tax limits,” predicted Scott Hoppe, a CPA at Why Blu in San Francisco.
“The top tax rate,” said Ann Etter, a CPA and partner at Goodney & Associates, in Northfield, Minnesota. Also “the corporate tax. The small corps got a tax increase out of this. The anti-corporate sentiment is building.”
“Tax rates for corporations, then tax rates for individuals, then a few other controversial provisions like the state tax cap, bringing back miscellaneous itemized deductions and so on,” said Daniel Henn, a CPA in Rockledge, Florida.
‘Vogue’ and ‘symbolic’
Among other things, Biden’s headline proposals include raising the top rate on taxpayers making more than $400,000 per year, and increasing capital gains and dividend tax rates for taxpayers who bring in more than $1 million annually. Also on the table: a cap on charitable deductions, and additional Social Security tax for those earning more than $400,000. (Some have called the latter a laudable fix but at an unreasonable cost to affected individual taxpayers.)
Many of these proposals seem more possible given the overall election results. Following Democratic control of Congress, “The first change to get pushed through will be an increase in the corporate income tax rate,” said Enrolled Agent John Dundon, president of Taxpayer Advocacy Services in Englewood, Colorado. “Why? Because ‘corporations are people too’ and someone has to pay for the excesses of the last decade.”
Personal exemption is another category facing possible change. “Older Zoomers, [ages] 18 to 22, are getting to be a louder voice, and those who went to college or trade school suddenly became much less of a deduction for their parents,” Etter said. “Something will have to be adjusted here.”
“Next on the chopping block is a tie: estate tax or Opportunity Zones,” said Daniel Morris, a CPA and senior partner at Morris + D’Angelo CPAs in San Jose, California. “I anticipate that Congress may push for a reduced estate exemption. Note that in 2026 estate taxes change anyway, so this may be lower on the proverbial chopping block. Opportunity Zones have been pointed out as a tax break for the wealthy and, again, increasing taxation of the wealthy is currently politically in vogue.”
Estate taxes are a similar hot potato in politics, he added. Biden also proposes bumping estate and gift taxes and slashing the lifetime exclusion amount.
Widespread support to change the state and local tax limitations and impose higher taxes on corporations that are still dealing with the pandemic is doubtful, said Morris Armstrong, an EA and registered investment advisor at Armstrong Financial Strategies in Cheshire, Connecticut. “For middle Americans who were excluded from the dreaded Alternative Minimum Tax, losing their SALT itemized deductions has been heavily criticized. At least two populous states — California and New York — are pushing to return to the pre-2017 itemized deduction rules.”
“Carried interest may come under attack and be treated as ordinary income,” he added. “That seems a benefit that accrues only to the privileged few and may be a symbolic victory.”
Emotions are high
Americans lack real economic understanding of taxes and taxation, Morris maintains. “For example, corporations do not pay tax. Only people can pay a tax,” he said. “Corporations may write the [tax] check but people pay them: Customers pay them through higher prices, employees pay them through lower wages and investors pay them through lower returns. This is a political, emotional item.”
And not the only emotional item. “Remember that 2022 is an election year. Who wants to have opponents say, ‘You raised taxes!?'” Armstrong said. “I think that if any changes occur of any significance, it’ll be [in] the window of 2023.”
