Biden’s Ambitious Agenda to Reform Individual and Business Taxes

By Doug Young – 15 May 2024

Introduction

President Biden has put forth a comprehensive tax reform agenda aimed at addressing issues of fairness, closing loopholes, and generating revenue for key initiatives. The proposed tax changes cover a wide range of areas, from individual tax rates to investment taxes and corporate tax policies.

Let’s delve into the details of Biden’s tax overhaul plan and its potential impact on individuals and businesses.

Individual Tax Change Proposals

Crackdown on Tax Evasion

To ensure that everyone pays their fair share, President Biden has secured additional funding for the IRS to crack down on wealthy individuals and corporations who have been avoiding taxes.

The IRS plans to hire more agents, enabling them to pursue those who have not fulfilled their tax obligations.

Adjustments to Income Tax Rates

Under the proposed plan, the top income tax rate would increase from 37% to 39.6%. It’s important to understand the marginal tax bracket system, where different income levels are taxed at various rates.

Biden’s plan also aims to lower the income threshold for the top tax bracket, subjecting more high-income earners to higher tax rates.

Changes to Medicare Taxes and Child Tax Credit

President Biden seeks to raise Medicare taxes on individuals making over $400,000 a year. Additionally, he intends to expand the child tax credit, providing monthly checks to eligible families.

The proposed changes aim to provide financial support to families and ensure adequate funding for essential healthcare programs.

Earned Income Tax Credit

The plan includes expanding the earned income tax credit, which primarily benefits low to moderate-income individuals.

The proposed expansion would make it easier for people without children and elderly individuals to qualify for this additional tax credit, providing much-needed relief for those in lower income brackets.

Investment Tax Changes

Elimination of Crypto Wash Sales

President Biden aims to eliminate a tax loophole known as crypto wash sales. Currently, individuals can sell and repurchase cryptocurrencies at a loss to artificially generate tax losses. This practice would no longer be allowed under the proposed tax changes.

Removal of Like-Kind Exchanges in Real Estate

Biden’s plan seeks to eliminate like-kind exchanges, also known as 1031 exchanges, in the real estate market. This tax benefit allows investors to defer capital gains taxes by reinvesting in similar properties.

The proposal aims to ensure that gains from real estate sales are subject to taxation, even with like-kind exchanges.

Capital Gains Taxes on the Wealthy

Under the plan, individuals earning over a million dollars a year would no longer qualify for the preferential capital gains tax rates. Instead, they would be subject to ordinary income tax rates.

The proposal has generated debate, with concerns about the potential impact on investment incentives and economic growth.

Stepped-Up Basis Elimination

President Biden intends to remove the concept of stepped-up basis, which currently allows inherited assets to be valued at their market value at the time of inheritance. This tax benefit enables heirs to avoid significant capital gains taxes when selling inherited assets.

The proposed change aims to ensure that inherited assets are subject to taxation based on their original cost.

Business and Corporate Tax Changes

Corporate Tax Rate Increase

Biden’s plan includes raising the corporate tax rate from 21% to 28%. This adjustment aims to generate additional revenue from corporations and address concerns about large corporations not paying their fair share.

The potential impact on corporate profits and the economy has sparked debates among economists and business leaders.

Salary Deductions for High-Income Individuals

The proposal limits salary deductions for individuals earning over a million dollars a year. Previously, high-income earners could deduct substantial salaries, reducing their taxable income.

The aim is to curtail excessive executive compensation and align it more closely with ordinary income tax rates.

Quadrupling the Stock Buyback Tax

President Biden proposes quadrupling the tax on stock buybacks from 1% to 4%. This change aims to discourage companies from using profits for stock buybacks and encourage investment in productivity and the broader economy.

Elimination of Oil and Gas Subsidies

The plan seeks to eliminate special tax treatment and subsidies for oil and gas companies. By removing these preferences, the proposal aims to promote a more level playing field and incentivize a transition towards greener energy sources.

Corporate Jet Deductions

President Biden also aims to eliminate tax breaks and deductions related to corporate jet purchases. This change would increase the cost of owning and operating corporate jets, aligning it more closely with commercial aviation taxes.

Conclusion

President Biden’s tax overhaul plan represents a significant shift in tax policies for individuals and businesses.

With proposed changes ranging from income tax rates to investment taxes and corporate tax policies, the plan aims to address issues of fairness, generate revenue for key initiatives, and promote economic growth.

The proposals have sparked debates and concerns about their potential impact on various sectors of the economy. As the plan evolves, it will be crucial to monitor discussions, analyze potential consequences, and adapt to the changing tax landscape.

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