President Biden recently released his tax agenda comprised of the American Jobs Plan focused on corporations and the American Families Plan focused on individuals. It’s important to note that both plans would need to be passed by both the House and Senate before signing into law, and many changes may take place before they are passed. Below we dig into the goals and a few main provisions of both plans.
What are the goals of the Made in America Tax Plan and American Families Plan?
The Made in America Tax Plan was proposed as a means to raise over $2 trillion within 15 years to help pay for President Biden’s American Jobs Act. With goals of ensuring corporations pay their fair share in taxes and encouraging job creation in the U.S., President Biden’s proposed the Made in America Tax Plan that would directly impact businesses.
On the individual side, according to taxfoundation.org, the proposed American Families Plan would partially pay for about $1.8 trillion in new federal spending on education and family programs with about $661 billion in additional taxes on higher-income individuals and pass-through businesses like partnerships, sole proprietorships, and S corporations.
Proposed Changes Under the Made in America Tax Plan
Corporate Tax Rate Increase
- Current rate: 21%
- Proposed rate: 28%
Corporate Minimum Tax of 15%
Corporations reporting $100 million or more on financial statements would be subject to a new corporate minimum tax of at least 15%. According to the Plan, there are only 180 companies that would meet this threshold.
Expand Corporate Audit Activity
IRS funding to expand corporate audit activity would be increased, which could mean more audits for certain taxpayers.
Tax Credit Changes for Fossil Fuels and Clean Energy Companies
The Plan would take away all tax incentives for the fossil fuel industries and require polluters to pay into the Superfund Trust Fund. It would also provide tax incentives for sustainability, including extending credits for clean-energy generation.
Incentives for U.S. Job Creation
Companies that move operations oversees would face a 10% tax penalty, while companies that create jobs in the United States would receive a 10% tax credit.
Housing and Infrastructure Incentives
The Plan proposes expanding the low-income housing tax credit, making new markets tax credits permanent and offering a new neighborhood homes investment tax credit.
Proposed Changes Under the American Families Plan
Increase Individual Tax Rates
- Current top marginal income tax rate: 37%
- Proposed top marginal income tax rate: 39.6%
This new rate would affect individuals with taxable income over $452,700 and $509,300 for those married filing jointly.
Capital Gains
The Plan would tax capital gains of high-income taxpayers with AGI over $1 million at 37%. Gifted property and property owned at death would also be subject to capital gains tax.
Expand Use of NII and SECA Taxes
Biden proposes expanding the application of net investment income (NII) and Self-Employed Contributions Act (SECA) taxes so that all pass-through business income of high-income taxpayers would be subject to either NII or SECA tax.
Child Tax Credit Incentives
The 2021 child tax credit increase would extend through 2025 and be permanently refundable. The employer-provided child care tax credit for businesses would increase to 50% of the first $1 million of qualified care expenses.
Like-Kind Exchange Changes
Biden’s plan would eliminate the ability to defer like-kind exchange gains tax-free for gains over $500,000 per year.
Permanent Extension of Excess Business Loss Limit
The excess business loss limitation for noncorporate taxpayers would be made permanent.
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