Tax revisions are a hot topic. The Biden campaign proposed a slate of changes running up to the election last year, members of Congress have suggested various tax increases to pay for more stimulus, and press reports have continued to speculate on which changes are more or less likely. The Democratic and Republican Party positions are far apart and there is little bipartisan sentiment or cooperation. The Democrats have a slight majority in the House. The Senate is split 50/50, and so with Vice President Harris’ tie-breaking vote, Democratic proposals would win if all Senators vote on party lines. For the Democrats, losing one vote in the Senate could potentially defeat tax legislation. Given the wide divergence of positions and the razor thin margin, it is impossible to predict both the probability of passage and the timing of implementation for any of these proposals.

Proposed Corporate Tax Rate Changes

One of the proposals involves raising the corporate tax rate from 21% to 28% and changing the taxation of multi-national business from 10.5% to 21%. The latter would raise the Global Intangible Low-Tax Minimum Tax (GILTI), calculate the GILTI on a per-country basis, eliminate the exemption of the first 10% return on foreign qualified business asset investment (QBAI), and repeal the foreign derived intangible income (FDII) deduction. This is the portion of U.S.-based corporate income derived from serving foreign markets.

Proposed Individual Tax Rate Changes

For individuals, one of the proposals includes raising the top marginal income tax rate from 37% to 39.6%, which would apply to income over $452,700 for single filers. Other proposals include taxing long-term capital gains as ordinary income for taxpayers with adjusted gross income above $1 million, resulting in a top marginal rate of 43.4 percent, and applying the 3.8 percent Net Investment Income Tax (NIIT) to active pass-through business income for those earning over $400,000.

One potential change that could be a positive for many taxpayers is the proposal to do away with required minimum distributions (RMDs) except on inherited IRAs.

Proposed Estate Tax Changes

Senator Bernie Sanders has proposed lowering the lifetime exemption from the current $11.7 million to $3.5 million. The Tax Cuts and Jobs Act (TCJA) of 2018 expires at the end of 2025. If nothing is done, the exemptions will revert to about $6 million (the original $5 million indexed for inflation). Doing nothing will cut the exemption in half in 2026, which a majority of estate planning experts think is the most likely scenario. The small minority who can afford it are in the process of making gifts of the full $11.7 million as soon as possible, as there is a proposal to limit lifetime gifts to $1 million. Additionally, there is a proposal to tax unrealized capital gains at death for amounts above $1 million. This would be a substantial burden on many estates. Thus far, Senator Jon Tester (D., Mont.) and Representative David Scott (D., Ga.), have objected to the change on gains at death, warning about its potential impact on farmers. If Senator Tester’s opposition is sustained, passage is unlikely.

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