Taxing the Rich
The Biden Administration has proposed a $5.8 trillion budget for the 2023 fiscal year. Key changes include hiking the corporate tax rate to 28% from 21% and increasing the top personal income tax bracket to 39.6%, up from 37%. Those rates would become the highest in the developed world. There would also be a “Billionaire Minimum Income Tax,” targeting the country’s highest net worth taxpayers, that would require all U.S. households worth more than $100 million to pay a minimum tax of 20%.
In practice, what will happen as the result is that both businesses and wealthy individuals will continue to move from high tax states like New York & California to low-tax states like Florida, Texas, Tennessee, Wyoming and others that are now overflowing with “expats” (including Elon Musk). Trends like this will only serve to empty out great cities like New York, which are still working to regain their footing after the pandemic.
That said, uprooting your family and your business is easier said than done. Plus, there are winners and losers in every budget, and with every administration, there will be changes. The only thing to do if you are facing higher taxes is to plan. Thoroughly discussing your concerns with your accountant is the only way to understand your options and prepare accordingly.
Although many people are still busy putting the finishing touches on their 2021 tax returns and aren’t eager to think about taxes for next year, now is actually the ideal time to start planning. The best way to make the most of any tax breaks and strategies available to you is to start using them on the first day you or your company are eligible. Every month counts. I highly recommend that all of our clients and friends take a look at our guide, “The Biden Administration’s Annual Budget.” If you’re not sure exactly what questions to ask your tax professional, it will help you get started.
One move that could help many Americans get a leg up is the President’s proposal to extend the payment pause on federal student loans until September. In addition, borrowers who have defaulted will automatically be restored to good standing. We’d all like to put the pandemic behind us, but the reality is that many people fell behind financially and are going to need months, if not years, to get caught up. And given the cost of college tuition, those student loan payments can be crushing to anyone early in their career. I hope we’ll see a lot more creative thinking in the months to come about how to remove the financial barriers to entry that make it hard for young people of modest means to establish themselves and, ultimately, to join the workforce with the degrees they need.
No doubt we’ll see a lot of debate about the new measures on the table. And further, everything proposed will not survive the legislative process. I’ll be keeping a close eye on the headlines. Tax policy may not be everyone’s excitement of choice, but it offers a fascinating window into what we value as a society (or at least what the major lobbies are pushing for)—and many lessons on the laws of unintended consequences. Stay tuned.
Staying with the tax theme, we are in the final innings of personal tax filing (or extension) season, with the April 18 deadline for filing, and more importantly paying any balances due for 2021. If you haven’t focused, time is quickly slipping away. Get to it.