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  • Writer's pictureRobert Strauss

Recent Tax Law Proposals Could Stifle Economic Growth, Domestic Investment and Job Creation

Recent tax law proposals in the U.S. aim to increase taxes for high-income individuals and businesses. Key proposals include higher top rates for individual and corporate income, capital gains, eliminating the step-up in basis at death, expanding the Net Investment Income Tax, and new minimum taxes for large businesses. These changes are projected to significantly increase government revenue but may also impact economic growth and job creation. In-Depth Analysis: The proposed changes in the U.S. tax law under the Biden administration include:

  1. Increased Top Tax Rates: The plan proposes raising the top marginal tax rate on individual income to 39.6% and adding an 8% surtax on modified adjusted gross income (MAGI) above $25 million, bringing the combined top marginal tax rate to 57.3%.

  2. Changes to Capital Gains Taxation: Capital gains would be taxed at ordinary income tax rates, increasing the top marginal rate to 48.9%. The "Billionaire Minimum Tax" would also include unrealized gains in the tax base annually.

  3. Corporate Income Tax Increase: The corporate income tax rate is proposed to rise to 28%, putting the U.S. near the top of the OECD at a combined rate of 32.3%.

  4. End of Step-Up in Basis: The plan ends the step-up in basis provision for inherited assets, making death a taxable event.

  5. Expansion of Net Investment Income Tax (NIIT): The NIIT would apply to active pass-through income, and the pass-through business loss limitation would become permanent.

  6. Other Reforms: The proposal includes major changes to international taxation and new minimum taxes for large businesses and individuals.

These tax law changes, including the Biden Budget and the Build Back Better Act (BBBA), aim to raise significant revenue, with estimates showing over $4 trillion in new taxes primarily from U.S. businesses and individuals. However, there are concerns about their impact on economic growth, domestic investment, and job creation​​.

For financial advisors, it's crucial to understand these proposed changes, as they could substantially affect tax planning strategies for high-income clients and businesses. Note that these are proposals and may be subject to modifications during the legislative process. Always consult a tax professional for the most current information and personalized advice.

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