On August 24, 2021, the House voted to approve the fiscal-year 2022 budget resolution that provides reconciliation instructions for the $3.5 trillion tax and spending bill informally known as the human infrastructure bill. The House also called for a vote on the $1 trillion bipartisan bill, the Infrastructure Investment and Jobs Act, that passed in the Senate about two weeks ago.
Now that this procedural hurdle has been overcome, the tax-writing committees of the House and Senate can begin drafting the human infrastructure legislation. They are aiming to complete the drafting process by September 15, 2021. We expect the legislation to be enacted into law in the fourth quarter of this year.
There has been a lot of speculation about what will and will not be included. The international provisions were released today by the Democratic members of the Senate Finance Committee (the draft bill is here, and the section-by-section summary is here). As for the other provisions, it’s anyone’s guess. Here’s what we have heard on some of the issues – but remember, these are just educated guesses, and nothing is final until the President signs the bill into law.
On the individual side, the top tax rate is likely to increase from 37% to 39.6%, and the income level at which it applies is likely to be lowered. The top tax rate on long-term capital gain is likely to increase from 20% to somewhere between 25% and 39.6% for households with more than $1 million of income. Retroactivity for capital gain realized since April 28, 2021 is looking less likely by the day.
The $10,000 limitation on the deduction for state and local taxes (the SALT limitation) is likely to be expanded rather than eliminated, perhaps to somewhere between $25,000 and $40,000. The bill also is likely to include an overall limit on itemized deductions, limiting their value to 28%.
The bill is not expected to eliminate the tax-free step-up in basis on death, i.e., the proposal to tax capital gain on death is not likely to survive. But the lifetime estate and gift tax exemption is likely to be lowered from $11.7 million per person to somewhere between $3.5 million and $5 million. Estate tax rates are likely to go up.
On the corporate tax side, tax rates on C corporations are likely to increase from 21% to somewhere between 25% and 28%. There is also likely to be a new tax (somewhere around 15%) on corporate book income for corporations with revenue over $100 million.
These are just some of the tax increases that are expected to be passed. There will be many others, particularly since they need to raise $3.5 trillion.
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