More spending = 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.
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 jobs bill to cover.
Watch out for 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.3 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.4 Be careful about buying one, however – a slight increase in interest rates could make those bond values plummet.
Bottom line: we don’t know exactly what will ultimately come out of Congressional haggling; however, it’s smart to prepare ourselves for potentially higher tax rates in 2022. Actually, even beyond.
Even if NO bill passes, the current tax law will expire in five years taking us back to the Obama era tax brackets – and those will affect most everyone.
What could 2022 taxes look like? While I don’t have a crystal ball (well, I do, but it’s in the shop), the following changes seem very possible:
- A higher top income tax rate
- A higher capital gains tax rate (Some want to eliminate capital gains and tax it all at the higher income rates. Others, including President Biden, favor eliminating the step-up at death and taxing inherited wealth, beyond a certain threshold, as income whether the inherited assets are sold or not.)
- 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, especially since the SECURE Act all but eliminated the stretch IRA for nonspouse beneficiaries – which would force liquidation within ten years when the beneficiaires are in their peak earning years and likely in higher tax brackets (with the double-whammy of tax increases).
Good planning can mitigate – maybe even eliminate – some of these concerns.
It’s all about the plan. Without that, it’s all about Washington. Take your pick!