In August, the House of Representatives approved a roughly $3.5 trillion budget, which opens a parliamentary procedure known as budget reconciliation, a procedure used to pass the American Rescue Plan Act back in March.
This past week, the House Ways and Means Committee released legislative text that will offer revenue to offset the expenses in the budget. The tax revenue measures include:
- Increase top capital gains rate from 20% to 25%
- Raise the top individual tax rate from 37% to 39.6%
- Impose a 3% surtax on individuals’ income above $5 million
- Replace the 21% corporate tax with:
- First $400,000 taxed at 18%
- Next $5 million taxed at 21%
- Rest taxed at 26.5%
Other parts of the proposed legislation include international tax changes, changes to the rules for IRAs for high-income households and providing the IRS with $80 billion to increase tax enforcement activities and update technology.
The increase in tax revenue would be used to:
- Extend the child tax credit, earned income tax credit, the child and dependent care tax credit, and paid family and medical leave
- Lower prescriptions and health insurance premiums
- Provide consumer rebates to weatherize and electrify homes
- Offer clean energy, manufacturing and transportation tax incentives
The legislation will have to be agreed to by the House, Senate and the White House – so details are bound to change. However, this is a good opportunity to assess which clients will be most affected by the changes and start tax planning. (Source: NATP TAXPRO Weekly, 9/16/21).