The details were contained in a White House Fact Sheet that we wrote about here. On April 7, the Treasury Department issued a press release and a report providing additional information about The Made in America Tax Plan and how it would fully pay for the American Jobs Plan over a 15-year period.
As if all these patriotically-named plans weren’t enough to make the average reader dizzy, President Biden on April 28 released his “American Families Plan,” an “investment in our kids, our families, and our economic future.” This plan, along with the American Jobs Plan, is phrased in terms of “once-in-a-generation investments in our nation’s future.” It attempts to “reward work – not wealth.” It would raise $1.5 trillion over 10 years. The highlights are as follows:
These proposals are extremely broad and take aim at a lot of longstanding tax breaks. There will be tremendous lobbying against many of these proposals, and they are best viewed as President Biden’s opening bid rather than his final position.
Democrats have a slim majority in the House and can control the Senate only through VP Harris’s ability to cast a tie-breaking vote, so they will need every vote they can get. That will not be easy, especially since individual Democratic lawmakers have been angling for leverage to advance their own ideas. For example, House Democrats from New York are pushing for a repeal of the $10,000 limitation on the deduction for state and local taxes, and others like Senators Joe Manchin (West Virginia) and Bob Menendez (New Jersey) have been critical of the tax increases, particularly those that raise the tax rate on capital gain from 23.8% to 43.4% (for those making more than $1 million per year).
To be fair, Senate Republicans have proposed a slimmed-down infrastructure proposal of their own – $568 billion over five years, about 25% of Biden’s proposed spending. There is no chance this proposal will find common ground with the Democrats, but that probably wasn’t the point. Both parties like to show they have ideas too, and they like it even more if their proposals can highlight their policy differences from the other party.
Some see the Republican proposal as a “benchmark for any future negotiations,” but that’s just wishful thinking – there is not likely to be any inter-party negotiation here. Democrats are expected to force through legislation just like the Republicans did when they were in control. Unfortunately, that’s become our system of government.
There is a lot more to come on these proposals in the days and weeks ahead. It’s too early to begin making major changes at this point, but not too early to start modeling out different planning ideas like Roth conversions or triggering capital gain in a sale or corporate liquidation. And the big uncertainty is retroactivity – we know Congress has the authority to pass laws with retroactive effect, but the question is whether they will do so now. The conventional wisdom is that retroactivity is more likely for bills passed earlier in the year, and less likely for bills passed later in the year. This suggests that a healthy debate on the merits and details of these plans would be good for investors.