Biden Proposes Budget Plan

In late 2017, the Tax Cuts and Jobs Act (TCJA) was sweeping tax legislation that dramatically shifted the way a majority of Americans handle their taxes. To get the legislation passed, congress at the time had to implement a “sunset” to those tax rules. Years ago, 2026 was a long way off… Well, here we are. 2025 is the final year of the TCJA as it was implemented. At this point, without further legislation, 2026 will simply revert to the tax policy that we had before. We believe that tax policy is going to be a central economic focus for the election, and we will be working with clients to make sure to account for any changes.

Biden released his 2025 budget this past month, which gives some insight into what potential changes might be considered if Biden is the presiding president. His budget proposal includes:

• increases to the top income tax rate (from 37% to 39.6%) and an increase in the net investment income tax rate from 3.8 to 5%. This is a tax that high-income Americans pay in addition to normal capital gains taxes.
• Roth conversions would be limited for high-income Americans, ending the much-loved “back door” Roth IRA strategy.
• Transfers of property by gift or death would potentially create taxes.
• Taxes would be owed on unrealized capital gains for those with a net worth over 100M.
• Lastly, the proposed budget would increase the tax on long-term capital gains and qualified dividends for income over one million annually. This would effectively raise the top rate for capital gains to 44.6% (39.6% + the 5% surtax).

While we don’t believe that many of these tax policies are likely to get implemented, it is clear that the current sentiment is to increase taxes on some of the wealthiest taxpayers. The proposed legislation reduces a taxpayer’s ability to shift capital gains to someone else at a lower rate, accelerates taxes, and forces wealthy individuals to pay capital gains tax at a higher level. We do believe that it is likely that some sort of policy will increase the capital gains rates and likely higher income tax rates for high earners. For our clients, that means exploring strategies like Roth conversions, strategic capital gains management, and retirement contribution strategies.

Advisory services offered through National Wealth Management Group, LLC, a Registered Investment Adviser. This information is intended for educational purposes and is not intended as a recommendation to buy or sell securities. Investing involves risk. Before investing, you should consult with a financial advisor to determine how a specific investment strategy fits your personal goals and objectives.