Tax Provisions Included in President Biden’s Newly-Proposed American Families Plan

During his first address to a joint session of Congress on April 28, 2021, President Biden presented his American Families Plan (the “Plan”). This $1.8 trillion Plan includes provisions for universal pre-k, two years of free community college, and the expansion of tax cuts for middle- and lower-income families.

The proposed Plan includes the following tax provisions:

• Increase top income marginal income tax rate to 39.6% (currently 37%) for an individual with income of $452,700 and a married couple with an income of $509,300.
• Increase the tax rate on corporations to as high as 28%.
• Increase the capital gains tax rate (including for qualified dividends) to 39.6% for households earning $1 million or more (currently 20%). The effective date could be as early as Congressional action.
• Apply the 3.8% Medicare tax “consistently” for those making over $400,000, thus applying it to active business income and S corporation income.
• New income limitations on using the Section 199A 20% business deduction.
• Repeal the “step-up in basis” rule at death (currently at death the tax basis of assets is adjusted to the date of death value), with exceptions for small estates and family-owned businesses and family farms passed down to family members.
• The current estate tax exemption is $11.7 million for each person and the tax rate is 40%. These provisions DO NOT change under the proposed Plan.
•  Eliminate use of like-kind exchanges for gains over $500,000.
• Further restrictions on allowing carried interest to be reported as capital gain.
• Increase support for IRS tax enforcement.

It may be difficult for all these provisions to get through the U.S. Senate in their current form where the more conservative Democratic Senators object to tax increases. It should also be noted that the controversial $10,000 cap on the itemized deduction for state and local taxes (SALT) under current law was not addressed in the Plan.

For Further Information: 

For more information on appropriate steps to take and policies to implement, or to address issues arising for you on this or any related topic, please contact Kristen Behrens, John Latourette, John Schmehl, Stephanie Searles Vogel or Matthew Whitehorn.