Biden Tax Proposals to Pay for the American Families Plan

On April 28, 2021, President Biden announced the American Families Plan, a $1.8 trillion proposal that would fund a number of education and childcare projects. To pay for these proposals, the American Families Plan includes the following tax proposals:

  • Increasing the capital gains rate from 20 to 39.6 percent for households with over $1 million in income.
  • Ending the “stepped-up” fair market value basis at death, with an exemption of $1 million per person.
  • Increasing the highest individual tax rate from 37 to 39.6 percent, without repealing the cap on state and local tax (SALT) deductions.
  • Treating carried interest as ordinary income instead of capital gains.
  • Ending tax deferral under Section 1031 for like-kind exchanges for gains in excess of $500,000.
  • Increasing funding for IRS enforcement by roughly $80 billion over the next ten years.

No mention was made as to whether any of these provisions would be applied retroactively.

Additionally, the American Families Plan would extend or make permanent some of the temporary tax changes passed under the American Rescue Plan (which are set to expire at the end of 2021), such as:

  • Increasing through 2025 the child tax credit from $2,000 to $3,000 per child (and $3,600 per child under the age of six), and permanently making the credit fully refundable.
  • Permanently expanding tax credits for individuals who purchase their health insurance directly.
  • Permanently increasing the child and dependent care tax credit from a maximum of $1,050 to $4,000 for one child or dependent and from a maximum of $2,100 to $8,000 for two or more children or dependents.
  • Permanently increasing the earned income tax credit from a maximum of $538 to $1,500.
 

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