More spending must equal higher taxes?  Right?

That seems likely with a $2 trillion American Jobs Plan (that could eventually cost trillions more) on the table to bolster America’s crumbling infrastructure and invest in R&D.1

What could those tax hikes look like? Let’s consider the possibilities.

Though President Biden committed to not raising taxes on folks earning less than $400,000 per year, it seems hard to believe that he’ll be able to keep that promise with such a massive bill to cover.2

Also, it appears that married folks filing jointly could find themselves facing a big marriage penalty if they get swept over the $400k threshold as a household.2

One option on the table is a new auto mileage tax, which would raise money for highway infrastructure. Another is higher fuel taxes, which could increase what Americans pay at the pump.3 However, both proposals would be difficult to get through Congress, so they seem unlikely to come to fruition.

Some economists favor funding long-term infrastructure spending with ultra-long bonds and it is possible Treasury Secretary Yellen will consider issuing 50-year bonds for the first time since 1911 to take advantage of low interest rates.4

Bottom line: we don’t know exactly what will ultimately come out of Congressional haggling; however, it’s smart to prepare ourselves for potentially higher tax rates in 2022.

What could those look like? While I don’t have a crystal ball, the following changes seem very possible:

  • A higher top income tax rate
  • A higher capital gains tax rate
  • A higher corporate tax rate
  • A lower estate tax exemption amount

We’ll know more as the final deal shakes out, but it’s clear these possibilities make 2021 even more critical for tax and estate planning.

You should reach out to your tax advisor or financial advisor to assess if your strategies need to be updated.

In other tax news, the IRS has extended the deadline for making 2020 IRA and HSA contributions to May 17, giving folks an extra few weeks to get them in.5

Also, folks who already filed and paid taxes on 2020 unemployment benefits and are due money back under the recent rule change will automatically get refunds from the IRS, avoiding the need to file an amended return (unless they became newly eligible for additional credits or deductions).6

There’s a lot going on right now in Washington and we can’t know what the final resolution will be until all sides have their say.

However, it’s wise to remember that laws and circumstances change all the time. All we can do is stay on top and plan ahead as best we can.

Yours in tax news,

Anthony Bucci, BFA™ Managing Director

https://abucci.yournextphase.com/

1https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/

2https://www.cnbc.com/2021/03/18/biden-tax-plan-what-people-making-under-and-over-400000-can-expect.html

3https://www.reuters.com/article/us-usa-biden-tax-analysis-idUSKBN2BM14D

4https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/yellen-faces-major-hurdles-to-issue-of-50-year-bond-that-mnuchin-passed-over-62228383

5https://www.irs.gov/newsroom/irs-extends-additional-tax-deadlines-for-individuals-to-may-17

6https://www.irs.gov/newsroom/irs-to-recalculate-taxes-on-unemployment-benefits-refunds-to-start-in-may

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

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Securities offered through Securities America, Inc. Member FINRA / SIPC. Check the background of your financial professional at FINRA's BrokerCheck. Advisory services offered through Securities America Advisors, Inc. Mission Point Planning and Retirement, and the Securities America Companies are unaffiliated.
Securities America and its representatives, Mission Point Planning and Retirement do not provide tax or estate planning advice. These services are provided in conjunction with a qualified tax and/or estate planning professional.
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* Source: Pew Research Center
† Source: “Quantitative Analysis of Investor Behavior, 2014” Dalbar Inc. Most recent data available. An index is un-managed and one cannot invest directly into an index.

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