On November 3, 2020, Biden won the presidential election in a divisive election.

The Democrats control the Senate. Democratic candidates won the two George run-off elections on January 5, 2021, so there are now 50 Democrats and 50 Republicans in the Senate. But Democrats control the Senate because the vice president, who serves as the president of the Senate, casts the tie-breaking vote. Senate Democrats can pass some legislation by using budget reconciliation, which is a special parliamentary process that allows Senators to pass legislation with a simple majority, instead of the 60 votes that are typically required.

Biden faces several challenges, including:

Biden’s tax proposals would raise taxes on the wealthy and on corporations. Below, are some of Biden’s tax proposals:

(1) Biden proposes to increase the top marginal tax rate by 2.6% for individuals earning more than $400,000, and increase the FICA tax on these taxpayers. The top marginal tax rate would increase from the present rate of 37% to 39.6%.

(2) Biden would keep the 3.8% net investment income tax.

(3) Taxpayers earning more than $1 million would have investment income (which includes capital gains and qualified dividends) taxed at the ordinary income tax rate, not a lower tax rate. So, the top tax rate on investment income for these taxpayers would be 43.4% (a 39.6% tax rate plus a 3.8% net investment income tax).

(4) Biden would raise the corporate tax. “As for the corporate tax rate, there is no other way but up, given record budget deficits in the U.S.,” states Rupal Bhansali in Barron’s Investing Experts See ‘Low-Level Civil War,’ Hyper Stimulus, and Risks That Haven’t Yet Materialized for the Stock Market by Lauren R. Rublin (Barron’s 1/15/2021).

(5) Biden proposes to eliminate the step-up in basis at death.

(6) Biden would lower the estate and gift tax exemption by returning it to 2009 levels. So, the exemption would drop from $11.58 million per individual to $3.5 million per individual. In light of this proposal, estate planners are recommending that high-net-worth taxpayers should consider gifting assets during their lifetime.


Private placement life insurance trusts can be used to lessen the burden of Biden’s proposed increases to the federal and state income and capital gains taxes. See Al W. King III, Zero Tax Trusts, Trusts & Estates Magazine, Sept. 2021.

Resources

Jeff Stimpson, Here’s How Trump And Biden May Change Your Clients’ Taxes, FA Magazine, Aug. 31, 2020.

Jeff Stimpson, How Biden’s Tax Proposals Might Sting Wealthy Clients, FA Magazine, Nov. 23, 2020.

Charles Rubin, Antideferral Tax Legislation on the Horizon? What is Antideferral Tax Legislation?, Rubin on Tax, Jan. 20, 2021 (criticizing antiderferral Tax Legislation outlined in a report by Senator Ron Wyden, the ranking member of the Senate Finance Committee: “President Biden promised to undo the tax cuts made by President Trump. The antideferral rules, if adopted, would go far beyond undoing those cuts and instead would install a tax regime that never existed in the U.S. and a new drag on the economy that would likely have both unforseen and unfavorable consequences.”).

Tracey Longo, Will Biden Raise Dividend Taxes? It’s In The Plan, FA Magazine, Jan. 19, 2021.

Donald L. Korb & Andrew Solomon, What next for US tax policy?, Tax Journal, Jan. 21, 2021.

James I. Dougherty & Marissa Dungey, The 2021 Green Book’s Focus on Income Taxes, Trusts & Estates Mag., Sept. 2021.

[Updated 5/24/2021]