Does more spending lead to higher taxes? That seems likely with a $2 trillion American Jobs Plan (that could eventually cost trillions more) on the table to bolster America’s crumbling infrastructure and invest in R&D.
What could those tax hikes look like? Let’s consider the possibilities.
Though President Biden committed to not raising taxes on folks earning less than $400,000 per year, it seems hard to believe that he’ll be able to keep that promise with such a massive bill to cover. Also, it appears that married folks filing jointly could find themselves facing a big marriage penalty if they get swept over the $400k threshold as a household.
One option on the table is a new auto mileage tax, which would raise money for highway infrastructure. Another is higher fuel taxes, which could increase what Americans pay at the pump. However, both proposals would be difficult to get through Congress, so they seem unlikely to come to fruition.
Some economists favor funding long-term infrastructure spending with ultra-long bonds and it’s possible Treasury Secretary Yellen will consider issuing 50-year bonds for the first time since 1911 to take advantage of low interest rates.
The bottom line is we don’t know exactly what will come out of Congressional haggling; however, it’s smart to prepare ourselves for potentially higher tax rates in 2022.
What could those look like? The following changes are possible:
- A higher top income tax rate.
- A higher capital gains tax rate.
- A higher corporate tax rate.
- A lower estate tax exemption amount.
We’ll know more as the final deal shakes out, but it’s clear these possibilities make 2021 even more critical for tax and estate planning. In a webinar we recently hosted, we talk about tax strategies to look at for 2021 and beyond:
Deadline for 2020 IRA and HSA Contributions Extended
In other tax news, the IRS has extended the deadline for making 2020 IRA and HSA contributions to May 17, 2021, giving folks an extra few weeks to reap the benefits.
Also, those who’ve already filed and paid taxes on 2020 unemployment benefits and are due money back under the recent rule change will automatically get refunds from the IRS, avoiding the need to file an amended return — unless they became newly eligible for additional credits or deductions.
There’s a lot going on right now in Washington, D.C., and we can’t know what the final resolution will be until all sides have their say. However, it’s wise to remember that laws and circumstances change all the time — all we can do is stay in the know and plan ahead.
March 2021 Jobs Report Shows Hiring Surge