Nov 10, 2020
We started the Biden’s Tax Proposal Series by discussing the big picture impact and the effect it would have on households making $400k+. In this post, we are going to hit on proposals related to businesses and tax credits. There are many propositions mentioned in his plan, and we will continue to monitor the ones we believe will have a significant impact on individuals and families.
To recap, the impact on revenue from the tax plan is projected to raise around $3.5 trillion- about $1.5 of that coming from corporations.
This would increase from the current 21% to 28%. This is still lower than the pre-tax reform rate of 35%, but the plan would also eliminate certain corporate deductions and preferences.
This would establish a 15% minimum tax on “book” profits, known as annual income net of annual expenses, and this would apply for corporations with at least $100 million in annual income. This tax would function as an alternative minimum tax.
A new financial risk fee would be imposed on banks, bank holding companies, and other financial institutions with over $50 billion in assets. The number for this fee is still unknown. The purpose of this would be to provide the Federal Deposit Insurance Corporation (FDIC) a pool of funds to use when conducting the orderly liquidation of a failed financial institution.
There are numerous credits that have been proposed in Biden’s tax plan, but there are some particular ones that stand out to us.
As the cost of care continues to increase, the proposed $5,000 tax credit will help families that have to resort to informal caregivers.
They would expand this by making it refundable for those with no tax liability, increasing the maximum allowable expenses from $3,000 to $8,000 ($16,000 for multiple dependents), and increasing the reimbursement percentage to 50%. This would increase the maximum value of the credit from $2,100 to $8,000.
There have been a lot of changes made with student loans due to COVID and job losses. Currently, a borrower on an income-based repayment plan will have their loans forgiven after a certain amount of years (20-25). This is beneficial but still detrimental because that forgiveness amount is taxable, meaning a borrower must plan for the large tax bill. Getting rid of this means the forgiven amount will no longer be taxable.
This credit was in existence back in 2008 to encourage home buying. Now, this would come back as a $15,000 credit and continue to encourage home buying, but largely for a different reason: consumers don’t have enough for a down payment. Can you guess why? Student loans.
There is also a plan to restore the energy investment tax credit, which would provide an incentive for alternative fuel sources, along with restoring the electric vehicle tax credit. The EV tax credit had a max of $7,500 for purchasing an electric vehicle.
Overall, there is no direct negative impact on households making under $400k, but increasing corporate tax rates indirectly increases taxes for individuals and families.
We will continue to follow this proposal and provide any updates if Biden is selected as our new President. Stay Tuned!
Financial Planning Associate
Melissa came to Narwhal in the summer of 2018 following the completion of her master’s degree in financial planning from the University of Georgia, where she also earned her bachelor’s degree in consumer economics. Her interest in the field started with learning about consumer behavior, specifically it’s relation with complex moneymaking decisions. Melissa recently passed the CFP® examination in March 2020 and is currently fulfilling her experience requirement to become certified by March 2021. When she’s not working, Melissa enjoys doing pro-bono work, running (to an extent), reading, yoga, and spending time with her niece.
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