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No. of Recommendations: 9
Let me offer a small primer on the Biden Handler's tax plan, as I'm sure Biden has little idea what the plan's details are. (I'm retired from this industry, so I get a steady stream of updates on potential changes in matters of personal finance)

Impose the existing 12.4% Social Security tax (6.2% each for employer and employee) on salaries exceeding $400,000. This would create a gap between the top of the current taxed earned income of $137,700 and the proposed $400,000.

Repeal the TCJA $10,000 SALT deduction ceiling for itemized deductions

Increases the top tax rate from 37% back to 39.6%

Make capital gains and qualified dividends ordinary income for AGI > $1MM. Currently at this income level, these are taxed at 23.8% which would go to 43.8% rate with the 3.8% Net Investment Income Surtax. This surtax will likely boomerang, as capital gains are almost always elective, that is, an investor can choose when to take capital gains, and increasing the tax on realized gains by such a large jump-up will simply have investors doing less selling which can have the effect of actually reducing tax revenue.

Repeal the step-up in basis to heirs of inherited property that has increased in value. Currently, if a son or daughter inherits stock or real estate that has grown in value, the value of that property will 'step up' to fair value as of the date of death. Disallowing this will mean the heir will get the property at its basis (what the decedent originally paid for it) meaning on sale, the heir will have to pay capital gains tax on the gain they inherited. This is potentially a big issue as the core of most estate plans is to hold highly appreciated property to pass to heirs.

Limit itemized deductions for those with an AGI (I assume) over $400,000

Phase out the Qualified Business Income deduction for those with AGI > $400,000. This will be a big deal to small business owners for whom a large part of their 'paper earnings' that pass thru to them for tax purposes actually stay in the business.

Increases corporate max tax to 28% from current 21%. This will incentivize off-shoring and holding earnings overseas, thus reducing US corporate tax revenues.

Increases the child tax credit from $2,000 to $3,000 for children under 17

$15,000 tax credit for first time homebuyers

Change retirement plan contributions from pretax to after tax but replace the deductibility to a tax credit. The effect of this would be higher tax paid by higher income households.

And so on

These changes are generally geared to higher income households, which sells well to the lower income population. The problem with this is the lower income population pays such a small part of all Fed income tax. Per the IRS Statistics of Income for tax year 2018, households with an AGI of $50,000 and less represented 44.4% of tax filings but paid only 5.4% of Fed tax revenues. Raise that to an AGI < $100,000 and you get 87% of all tax returns and only 9% of tax revenue. Jump up to AGI > $500,000 and you get 1.45% of all returns filed but just under 40% of all taxes paid. Driving up tax rates on higher income is simply going to result in more tax avoidance schemes, to include moving money off shore and holding non-productive assets, complex trusts used to transfer assets, extended life insurance products designed to shelter income, and so on.

BruceM
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