The U.S. Congress is moving massive legislation investing possibly over $4 trillion in roads, bridges, ports and expanded social programs in two bills referred to as “hard infrastructure” and “human infrastructure.” This begs the question: Who pays the bill and when?
A recent study by the Penn Wharton School of Business identified three scenarios based on President Biden’s tax proposals. A straight read of Biden’s plan generates $4.2 trillion in new revenues (taxes) over the next 10 years. Many of his proposal are already off the table, but the “medium” scenario creates $1.8 trillion in new taxes with the “low” scenario coming at only $1 trillion in new taxes on Americans and businesses. However, Presidents do not raise taxes; Congress does.
On Capitol Hill, the tax writers are just now starting to weigh which provisions to include, what tax credits and deductions to eliminate and whom among us will see their taxes increased. Sources in Washington, D.C. indicate lawmakers are considering making changes to how pass-through entities such as Subchapter S Corporations are taxed and increasing the base C-Corporation tax rate.
However, we are hearing less enthusiasm on Capitol Hill to treat all capital gains as ordinary income, taxed at 43.4%, as proposed by President Biden. Many provisions, including the Estate Tax, Net Operating Loss, Last-in-First-Out and others, remain on the table. We will likely see a concrete proposal from the tax committees no later than September 15 and possibly around Labor Day. Hang on to your wallets!