A close 2020 election may dampen prospects for some of the more ambitious tax changes proposed by former Vice President Joe Biden, who was declared the winner of the presidential race over the weekend by several news outlets. The situation is still uncertain, however, with President Trump filing lawsuits challenging the vote count is several states and refusing to concede the election at this time.
The ability for either presidential candidate to implement further tax changes will come down to the composition of Congress. Dust continues to settle on a federal election that had competitive races up and down the ballot. President Trump is contesting the tallies in critical battleground states including Pennsylvania and Arizona. It appears that Democrats retain a slim majority in the House of Representatives, but the balance of power in the Senate remains uncertain. Although the ballots will be recounted, the initial margins for two U.S. Senate seats from Georgia were too close to call after the November 3 election. As a result, Georgia law requires that those two seats be determined by run-off elections in January. The outcome of those races will determine whether Republicans hold onto their slim majority in the Senate.
As we look ahead, it may be helpful to revisit some of presumed President-Elect Biden’s tax plans.
A New Stimulus Package
Congressional members were deeply divided over the extent of additional stimulus measures to help businesses and individuals recover from the COVID-19 pandemic. Once the election is settled, a new stimulus bill will likely be the top priority of the new Congress if nothing is resolved by year end.
Tax Cuts and Jobs Act Changes
Biden has been a vocal critic of some of the provisions of the tax reform law commonly known as the Tax Cuts and Jobs Act (TCJA). He supports repealing the tax rate cut on the highest income earners (those with more than $400,000 in annual income), which would increase the top rate from 37% to 39.6%.
He also supports restoring limitations on itemized deductions, and increasing the top income tax rate on long-term capital gains from 23.8% to 43.4% on taxpayers with income over $1 million annually. He favors returning the gift and estate tax annual exemptions to 2009 levels, which would be roughly $3.5 million for individuals and $7 million for married couples. And he would raise the corporate tax rate from 21% to 28%.
Should Republicans retain control of the Senate, however, the likelihood of major changes to the TCJA or other new tax legislation would be unlikely. Senate Republicans were strongly in favor of the tax reform law when it passed at the end of 2017, and advocate for making some of the changes to individual tax provisions permanent.
Other Changes May be More Likely
A Biden presidency may make more in-roads with other items, including reforms to the qualified opportunity zones program, additional tax credits, including provisions for renters and first-time home buyers, and an expansion of the earned income tax credit.
Regardless of the final outcome in the election, the short-term focus for legislation will likely be centered on various measures and provisions that could lessen the economic blow that the COVID-19 pandemic is having. Only once the Presidential election in finalized and Senate elections wrap up and if it ends up that the Democrats control the White House and Congress will some of those tax changes may have a higher chance of being considered, such as changes to the corporate tax rate or estate taxes.
Our team will continue to monitor federal developments as more information becomes available. For more information, please contact us.
Published on November 10, 2020