TAX REFORM THAT DOES NOT REWARD BUILDING WEALTH & SMART PLANNING

THE AMERICAN FAMILIES PLAN - What to know about the aggressive policies that punish smart Americans that have planned, invested wisely often for decades, worked hard to build and maintain wealth to benefit their retirements, loved ones, and charitable pursuits.

The President’s tax agenda will not only reverse the biggest 2017 tax law changes, but reform the tax code so that the wealthy are forced to play by the new rules that remove tax planning benefits that have been in place often for decades. It will ensure that high-income Americans pay MORE tax under the NEW laws. The opinion that this will end the unfair system of enforcement that collects almost all taxes due on wages, while regularly collecting a smaller share of business and capital income is highly a highly contested opinion across America. Many think giving Americans free money create a flock of sheep dependant on the US government to take care of them as a shepherd does for his flock. The plan will also eliminate long-standing loopholes, including lower taxes on capital gains and dividends for the wealthy. These reforms claim to rein in the ways that the tax code widens racial disparities in income and wealth which seems to be very difficult to prove is possible.

President Biden’s plan says it aims to uses the resulting revenue to rebuild the middle class, investing in education and boosting wages. It says it also gives tax relief to middle-class families, dramatically reducing child poverty and cutting the cost of child care in half for many families. The plan claims it will result in the President’s individual tax reforms will be a tax code with fewer loopholes for the wealthy and more opportunities for low- and middle-income Americans. Will this be the result or will unintended consequences cause inflation, loss of jobs, and others that could harm the middle class and America's free enterprise entrepreneurial spirit??

These tax reforms focused on the highest-income Americans could raise about $1.5 trillion across the decade. In combination with the American Jobs Plan, which plans higher taxes through corporate tax reform, all of the free give-away programs Biden's plan calls investments claims will be fully paid for over the next 15 years.

President Biden’s Plan Will;

• Revitalize enforcement to make the wealthy pay MORE tax. We have a two-tiered system of tax administration in this country: regular workers pay the taxes they owe on wages and salaries while smart wealthy taxpayers legally and wisely plan to mitigate their taxes allowed by the tax laws. Today, the IRS does not even have the resources to fully investigate the top 1% as a result of budget cuts, audit rates on those making over $1 million per year fell by 80 percent between 2011-2018.

The President’s proposal would change the game—by making sure the wealthiest Americans pay MORE tax. It would require financial institutions to report information on account flows so that earnings from investments and business activity are subject to reporting more like wages already are. It would also increase investment in the IRS, while ensuring that the additional resources go toward enforcement against those with the highest incomes, rather than Americans with actual income less than $400,000. Additional resources would focus on large corporations, businesses, and estates, and higher-income individuals.

• Increase the top tax rate on the most successful Americans to 39.6 percent. One of the 2017 tax cut’s clearest giveaways to the wealthy was cutting the top income tax rate from 39.6 percent to 37 percent, exclusively benefitting the wealthiest households—those in the top one percent. This rate cut alone gives a couple with $2 million in taxable an annual tax cut of more than $36,400. The President’s plan restores the top tax bracket to what it was before the 2017 law, returning the rate to 39.6 percent, applying only to those within the top one percent.

• End capital income tax breaks and other loopholes for successful Wealth Americans. The President’s tax reform will end one important aspect of our tax system: that the tax rate the wealthy pay on capital gains and dividends is less than the tax rates Americans pay on their wages. Households making over $1 million—the top 0.3 percent of all households—will pay the same 39.6 percent rate on all their income, as on their investment returns. This will destroy the risk-reward benefits of investing causing many American's Investment portfolios, retirement accounts, and desire to invest back into the American economy to suffer. This significant aggressive change allows the IRS to collect tax from the efforts, thoughtfulness, planning, and RISK investors have taken to generate a return on their investments.

• The President plans to eliminate the decades-long tax benefit that allows real estate investing Americans to step-up basis at death eliminating the tax on their wealth by passing it down to heirs. Today, our tax laws allow these accumulated gains to be passed down across generations untaxed rewarding the efforts to build and maintain real estate that makes our communities better, houses the middle class and elderly, supports medical systems, and much more. The President’s plan will close this loophole, ending the practice of “stepping-up” the basis for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions) and making sure the gains are taxed if the property is not donated to charity. The reform claims it will be designed with protections so that family-owned businesses and farms will not have to pay taxes when given to heirs who continue to run the business. If this design protection does not occur the backbone of America, small business owners and farmers will be destroyed.

• The President is also calling on Congress to close the carried interest loophole so that hedge fund partners will pay ordinary income rates on their income. The President would also end the special real estate tax break— STARKER 1031 Exchange that allows real estate investors to defer taxation when they exchange property—for gains greater than $500,000.

• The President would also permanently extend the current limitation in place that restricts large, excess business losses. Punishing many businesses for losses will harm the businesses from recovering and from losses, maintaining jobs for Americans, and allowing growth.

• Finally, High-Income Americans will pay MORE Medicare taxes.

High-income workers and investors generally pay a 3.8 percent Medicare tax on their earnings. The President’s tax reform would apply the taxes making over $400,000.

If you have worked hard to be successful, to build wealth, to take risks, to invest wisely over time, and desire to plan for the aggressive tax policies the Presedent has proposed please call Adam Ausloos at 414.269.2600 or email him at adam@defernow.com. Our industry-leading tax attorney specialist partners can help you protect, preserve, and grow your wealth even in this extreme tax environment. As always we look forward to helping people help others by allowing our clients to keep and control more of their hard-earned money!