Earlier this week legislation was introduced in Congress that reflects President Biden’s “Build Better” plan. This replaces legislation previously introduced on September 13, 2021 and there are a number of notable tax law changes that were dropped. Many of our clients have been doing significant planning and even accelerating certain actions in an attempt to avoid the harsh tax impact of the September 13th legislation, but much of that planning may no longer be necessary or at least not urgently necessary.
According to Mandelbaum Barrett PC Tax Law Chair Steven Holt, below are the material tax changes from the September 13th bill that have been dropped:
- The increase in the flat C corporate tax rate from 21% to 25%.
- The increase in the capital gain rate from a maximum of 21% to a maximum of 25% (plus a 3% surtax in many cases) which change would have been effective as of September 13.
- The changes to the grantor trust rules that would have eliminated the ability to substitute assets in and out of the trust and that would have made the assets of a grantor trust subject to estate tax at the grantor’s death.
- The reduction of the federal estate tax exemption from $11.7 million per spouse to $6.02 million per spouse.
Holt cautions that it may be too early to celebrate since there are a few Democratic Senators who have announced that they will not vote for the bill unless it incorporates certain modifications. One of these is Senator Sanders, who has long been an opponent of the tax laws that favored the passage of substantial wealth from generation to generation without incurring income taxes and/or estate taxes on unrealized appreciation. It remains to be seen how this will all be resolved.
Holt has advised certain clients that had wealth transfer plans on the launch pad to wait and see how this develops. For more information or any questions about these recent developments, please contact Steven Holt.