Tracking the Biden Tax Proposal
Technically, we are witnessing several different tax and economic bills that are at various stages of the legislative process. Most of these are found in the H.R.5376 - Build Back Better Act. There are some that are considered to be a net benefit to the economy, and others that will help certain individuals with tax credits. These plans are using a process called reconciliation to bypass the limits that can be imposed by the Senate. This process demands that any new legislation cannot add to the debt burden, and therefore must 'pay for itself'. Along with this, you may have also heard about the Trillion Dollar Coin, this is an idea where we can bypass the debt ceiling by minting a coin worth a Trillion Dollars. This idea comes from Warren Mosler, who is credited within founding Modern Monetary Theory (MMT). As of today, we're not running with the coin, so the path to passing the Act will be via reconciliation.
The revenue raising measures within reconciliation impact taxpayers directly, such as with a new higher ordinary income tax rate, and indirectly, such as restrictions on retirement contributions when assets and income reach certain thresholds.
There are several changes proposed which will have a negative impact on most clients, and some that may provide a positive impact. The extent of exposure to these pros and cons will vary, and may not be as bad as it seems. There are several provisions appear negative, but with closer examination appear to be more of a sound bite than a real issue, which we will explore later. In such cases it might be fairly easy to navigate around such new rules with a little planning.
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