Tax Policy Outlook for 2022

President Biden has made his “Build Back Better Act,” which would include major changes in US tax policy, a centerpiece of his legislative agenda. However, his party’s narrow majority in the House, combined with the 50-50 split in the Senate, have made it difficult for the president to get the necessary legislation passed by Congress. With no GOP support and centrist senators from his own party either reluctant to support it or in outright opposition to certain elements, the original “Build Back Better Act,” which would have raised personal income tax rates for some of the wealthiest taxpayers along with increasing corporate tax rates, appears to have little chance of passage in the near term, at least in the original form proposed by the president.

But passage of certain aspects of the plan may still be possible, even in the current divided legislative environment. Americans earning $400,000 per year or less are unlikely to be affected, but large corporations and the wealthiest individuals should keep tabs on the evolving tax debates in Washington, since they are the most likely to be subject to increases in taxation under the scenarios that are mostly likely to obtain the necessary legislative momentum.

Corporate alternative minimum tax. Many observers believe that a minimum tax of 15% on corporations could become a reality. Combined with a proposed 1% excise tax on corporate stock repurchases, this could significantly alter the taxation landscape for larger US corporations. Centrist Democrats have expressed support for rolling back some of the corporate tax cuts that were enacted as part of the Tax Cuts and Jobs Act (TCJA) of 2017, and lawmakers of both parties may see increases on corporate taxes as less onerous than higher tax burdens on individual taxpayers.

Higher taxes for the wealthiest Americans. Early versions of the Biden tax plan called for individuals who are earning more than $452,700 a year, and joint filers reporting more than $509,300, to pay taxes at a top marginal rate of 39.6% on income above these amounts. The plan would also impose a top capital gains tax rate of 39.6% for taxpayers with $1 million or more in annual income, nearly double the current top rate of 20%. Additionally, the president’s plan would have greatly reduced the estate tax exemption, dropping the level at which intergenerational wealth transfers would be taxed from the current $12.06 million ($24.12 million for a married couple) to $3.5 million for individuals ($7 million for married couples). While no changes in the estate tax exemption were included in the legislation passed by the House in November 2021, the bill did include a 5% surtax on estates with modified adjusted gross income (MAGI) of $200,000-499,000, and an 8% surtax on estates with MAGI of $500,000 or more. It remains to be seen whether this part of the legislation can win the support of centrist Democrats, which will be required for it to be enacted into law. 

At Bernhardt Wealth Management, our fiduciary obligation to our clients’ best interests ensures that we must remain vigilant for changes in taxation and other important financial matters that affect our clients and their planning. To learn more, click here to read our recent article, “Looking Back, Planning Ahead: Welcome, 2022!”

Buen Camino!