The latest spending blowout bill is still full of lots of bad ideas, but the following taxes appear to be looking less likely.
Importantly, this bill does not currently contain:
A potential repeal or increase of the cap on deductions for state and local taxes (SALT) paid. It’s quite possible this will be added, as many House Democrats from high-tax states such as New York, California and New Jersey insist it is necessary to gain their support for any tax bill. Many expect that any bill that ultimately passes would at least double the currently $10K SALT deduction.
Proposed elimination of the basis adjustment (step-up in basis) at death rule, which greatly impacts the amount of wealth a family can pass to the next generation.
Any proposal to deem death a realization event, triggering a capital gain on any unrealized growth; or imposing some type of annual tax, such as a mark-to-market imputed tax event, on the appreciation of taxpayer wealth.
Things to consider doing this year
5. Accelerate income into 2021—particularly if your income is above $5 million, as your total rate increase might be 5.6% (2.6% for ordinary bracket + 3% surtax). If you have retirement accounts, now may be a good time to consider a Roth conversion, so you might pay this year’s income tax rates on the converted assets4 (and also, to avoid a potential imposition of the 3% surtax in 2022).
6. Defer deductions including charitable deductions into 2022. A deduction’s economic value is higher when the taxpayer’s tax rate is higher. To be sure, deferring the deduction, or accelerating discretionary income, requires paying tax sooner on income, so taxpayers would have to weigh the economics of paying more tax now at a lower rate rather than recognizing more income in a future year at higher rates. If 2021 was an outsized income year for you or you are donating appreciated assets to charity, it could still make sense to donate in 2021 even if rates increase next year.
8. Take losses on the sale of cryptocurrencies and other property that starting in 2022 might be subject to the wash sale rule.
To elaborate on #8 above, crypto is not subject to a wash sale rule. You can sell it if you have a loss and 1 second later buy back the same position, allowing you to realize the losses for tax purposes. There’s no reason not to do this currently if you happen to have such losses. Come next year, you might have to wait for a month or more between selling at a loss you’d be allowed to claim for tax purposes and when you could repurchase the same asset for investment again.
Fingers crossed that the Democrats avoid making their tax hikes retroactive . . . . on cap gains in particular. There is much online discussion regarding this possibility. Just Google “retroactive tax hikes” and see for yourself.
Remember
Regardless how unfair and odious retroactive taxes are, Republicans are powerless to thwart them at this time.
What is rich is your support for your Dems raising the ceiling in order to lubricate expenditure of $3.5T on wasteful and unnecessary new and fraudulent welfare “infrastructure” programs. The latter including even more giveaways to the illegal immigrants you so blithely wish to underwrite and encourage at the expense of your own kids’ futures.
We’ve been over the ceiling for over 2 years now since it was only suspended from holding. Raising it now, is necessary because debt was increased (as usual) under the previous and current administration since August 2019, and because GOP refused to sign in on another suspension - which I think is fair considering the size of the looming “infrastructure” bills.
But the argument that we need to raise it only because Dems have accumulated all that debt is spurious. They are looking at spending a ton more for sure. But the argument glosses over the fact that both administrations have overspent enormously and are both incapable of responsible budgeting.
I’m not in favor of a large infrastructure bill which is really a bucket list of poorly targeted welfare programs we don’t plan to pay for via taxes, but where was the selective GOP outrage at the debt ballooning in 2019 and 2020 when they ran a combined $4.1T budget deficit?
The past is in the rear view mirror, is locked in, and is focused upon only by Democrat big spenders. At least the Republicans did not spend money further to balloon the welfare state in order to attract still more Central American hangers on. Also, if history really matters to you:
Go back a few decades and you will find Republicans who were fiscally responsible. Case in point (one of many): Senator Everett Dirksen of Illinois. It is Democrats who first sought to buy votes through excessive and unwise spending. It was tough for the Republicans to compete with a Santa Claus party. They did, and they continue to do, the best they could.
I know. And I wish they still were. It just seems like this brand of Conservatives is in short supplies lately. But what are the odds that one of them will run in 2024?
Returning to fiscal responsibility would score a ton of points with me but that does not seem to register on a lot of people’s radar. They only see inflation levels after the fact and do not connect the dots in how much this last two decades of politicians have allowed for erosion of purchasing power through overspending.
moderate Democrats rejecting the spending blowout have the party looking for “alternative revenues sources” and nearly halving their ambitious spending plans.
Sen. Kyrsten Sinema’s opposition to tax increases is causing Senate Democrats to look at financing their sprawling social policy and climate package without raising tax rates on businesses, high-income individuals or capital gains, according to people familiar with the matter.
The Arizona Democrat has told lobbyists that she is opposed to any increase in those rates, according to a person familiar with her remarks, but her stance is now pushing Democrats to more seriously plan for a bill that doesn’t include those major revenue increases.
Democratic lawmakers and aides said the plan under negotiation would likely wrap together a long list of their priorities—but for shorter durations—in order to squeeze them into a smaller price tag. In meetings at the White House on Tuesday, Mr. Biden indicated the package would spend around $1.9 trillion, with the cost covered by taxes and other revenue, down from the $3.5 trillion Democratic leaders had initially planned.
Only in Washington would people consider this insanity. They will have the same annual deficit but assume that spending only goes on for five years instead of 10. Everyone knows that once enacted entitlements are never repealed
Not true. Tax provisions can have set expirations. The Trump tax cuts (TCJA) have many provisions set to expire in 2025 or before. In fact, come 2025, without reform, individual income tax rates are due a serious bump. 22% bracket returning to 25%, 24% bracket back to 28%, 37% bracket to 39.6%. It’s called kicking the can and leaving your shit for someone else to sort. I’m assuming Dems are looking to pull the same trick. Get a few permanent changes in, leaving a bunch temporary to placate Sinema and Manchin, and sneak as much pork as they can get away with.
Time to remind everyone to hate the Evil Rich just ahead of that $2-3T spending blowout bill that needs all the taxes they can muster. A well timed piece on trusts like GRATs that can legally avoid some of the estate tax.
Not hating, but there should be some sort of estate taxation on wealth over certain amounts. We can argue over what a fair level of exemption but for me, $1B net worth would definitely be over that level. IMO $50M or so sounds about right.
But it’s hard for me to argue that you could not tax his $60B wealth at 50% say because that’d leave his heirs nearly destitute with only $30B net worth to their name for doing nothing but being born in the right family.
Tax rates are not entitlements. Entitlements are things like Social Security and Medicare and welfare. The Democrats are trying to institute entitlements like taxpayer paid college tuition and Medicare for all. Past administrations tried to reduce the amount of benefits, not eliminate the programs, and the recipients nearly rioted.
A White House official said Biden was referring only to corporate tax rate increases, not other potential provisions to raise federal revenue, including other tax proposals.
Biden also acknowledged that two provisions of the large social-spending bill he calls “Build Back [Bigger]” had been curtailed. An initiative to provide paid family leave would be slashed to just four weeks from 12, he said, and a proposal to make community college free would be eliminated.
Sorry I was mixing up the types of deficit-adding handouts between unnecessary tax cuts and overzealous welfare programs.
But you’re right that once people get on the government tit, it’s much harder to get them off than if they had not been on. That said, some bills have passed with limited time entitlements. The American Rescue Act of 2021 and the CARES bill of March 2020 had entitlement benefits that had set limits in time or total money amounts.
Now that’s not what Dems are looking for in their big spending bill but there’s no reason time limits should not be on the table, especially when you’re trying sweeping reforms.
I’d rather see either party put in place things that are designed to sunset by default. If the change turns out to be a good one, then later on the reform can be made permanent. If not, it’s a bit easier politically to let them expire than being seen as the ones who axed the ineffective entitlement.
Take student debt reform for example. Nobody really has the magic bullet that’s a sure fire cheap solution to fix it. I’d rather they attempted something not permanent, especially considering how difficult it is to pass new laws with the filibuster and current party entrenchment.
That one seems a bit disappointing to me. For borderline college-material students, that would have been a reasonably priced option to do it. Community-college pricing is much more affordable than even in-state public universities. Student often don’t pay for living on campus in over-priced dorms or don’t have to pay for expensive meal plans. They’re just paying for classes taught. Directing low-income students to it rather than footing their university bills through need-based scholarships at pricier universities did not sound like a terrible idea to me. And it gives them an intermediate option for exiting with a 2-yr associate degree if they don’t turn out to have what it takes to get a 4-yr degree. That could come in handy in majors where the cost-benefit analysis for the 4-yr degree is not really all that great.
I see an issue with the free community college going back to the for-profit institutions. They admit everybody but the learning is sub-par as the only criteria is to keep people registered. The idea should be to learn useful, marketable skills rather than getting a piece of paper. When the government enters in the business of making anything “free”, it’s just a matter of time before unsavory businesses pop-up to take advantage of the free taxpayer money.
To be more specific, people will be forced to sell small businesses like family farms and children to sell homes they inherited from their parents to pay for the capital gains taxes.
