By William G. Smith, LL.M. and Brittany E. Cobb, LL.M.
UPDATE: On November 5, 2021, the House of Representatives passed the INVEST in America Act (H.R. 3684), a crucial part of the Biden Administration’s larger social spending plan. On November 6, 2021, the House also passed a key procedural vote (H. Res. 774) to advance the eventual passage of the Build Back Better Act. The following the article pertains to provisions that have been removed from the Build Back Better Act.
Several major tax proposals advocated for by the Biden Administration and prominent congressional leaders have been dropped from the Build Back Better Act (H.R. 5376) in a modified bill released by the House Rules Committee on Thursday, October 28, 2021.
Specifically, the bill no longer includes the following proposals which were contained in the draft legislation released by the House Ways and Means Committee on September 13, 2021:
- Individual Income Tax Rate Increases to 39.6% for single filers making $400,000 or more, head of household filers making $425,000 or more, and joint filers making $450,000 or more.
- Wealth Tax Surcharge of 3% on modified adjusted gross income (MAGI) greater than $5 Million. However, the bill does include a surcharge of 5% on MAGI greater than $10 Million and an additional 3% on MAGI greater than $25 Million.
- Reduction of Lifetime Estate and Gift Tax Exclusion to $6.02 Million for 2022 (an acceleration of the scheduled reduction to occur in 2026) and adjustments to the unified tax credit.
- Long-term Capital Gains Tax Rate Increase from 20% to 25% and adjusted long-term capital gains tax brackets of $400,000 for single filers, $425,000 for head of household filers, and $450,000 for joint filers.
- Increased Taxation of Grantor Trusts by taxing certain transactions between the grantor and the trust.
- Increased Estate Tax Liability by including certain grantor trust assets in the grantor’s estate.
Since these proposals have been removed from the draft legislation, potentially, they are no longer being considered during the reconciliation process. However, some lawmakers, critics, and proponents have advocated for alternative measures to raise revenue for increased spending, including broadening the tax base, creating new tax code provisions to target billionaires, and eliminating current tax expenditures that benefit specific industries and households.
We do not know which provisions will be included in the final bill, and we will continue to monitor the legislative progress of these tax proposals and plan and advise our clients accordingly. We recommend that clients review their current estate plans and tax strategies now to determine if immediate action is needed to mitigate some potential tax consequences prior to the enactment of the bill.