Kelly Phillips Erb, the internet’s TAXGIRL, recently posted “What You Need to Know About the Current Federal Tax Proposals” at her BLOOMBERG.COM blog.
It is very important to note that, as the title of her post indicates, these are “proposals” and NOT current tax law.
KPE lists the major proposals for individual taxpayers –
“* The top individual income tax rate would revert to 39.6% for single filers making above $400,000, head of household filers above $425,000, and joint filers reporting more than $450,000. Without any Congressional action, that would still happen in 2025 (because of an earlier reconciliation).
* The top capital gains tax rate for those same high-income taxpayers would increase from 20% to 25% for all sales and transactions closing after September 13, 2021.
* The temporary expansion of the child tax credit—and advanced payments—would be extended through 2025. Additionally, changes to the Earned Income Tax Credit (EITC) and the Child and Dependent Care Tax Credit (CDCTC) would become permanent.
* There would be a 3% surtax on modified adjusted gross income over $5 million for single individuals, heads of household, married couples filing jointly, and surviving spouses. The surtax would kick in at $2.5 million for married couples filing separately.
* A $10 million limit would apply to Individual Retirement Accounts (IRAs) contributions—allowing for no further contributions for married couples with taxable income over $450,000 or singles with taxable income over $400,000. The $10 million threshold would also accelerate required minimum distributions for those accounts.
* The proposal would also disallow the so-called “back-door” Roth IRAs by eliminating conversions for IRAs and 401(k) plans for single filers making over $400,000, head of household filers above $425,000, and for joint filers reporting more than $450,000.
* The proposal would also modify the wash sale rules to include commodities, currencies, and digital assets.”
In addition –
“The top corporate tax rate would increase to 26.5% from 21% for corporate income above $5 million. (The 2017 law cut the rate for large corporations from 35% to 21%.) The tax rate drops to 18% for small businesses with income less than $400,000 and would remain 21% for all other businesses.”
Here are my thoughts on these proposals.
* I completely reject the Democratic Party tax policy of taxing the rich simply because they can afford it. I am against punishing success and entrepreneurship. I oppose the increased top tax rate, increased capital gains tax rate, and income-based surtaxes and surcharges.
The way to make sure the “wealthy” pay the proper tax is to eliminate all the special-interest tax deductions, credits, exclusions, and loopholes.
* I oppose the enhancements to the various “welfare” tax credits. The one and only purpose of the US Tax Code is to raise the money necessary to fund the government. It should NOT be used to distribute government welfare and other benefits, for “social engineering”, or to redistribute wealth.
I am not saying the government shouldn’t provide financial assistance to the working poor and college students, provide encouragements for purchasing health insurance, making energy-saving purchases and improvements and other ‘worthy’ actions. What I am saying is that such assistance and encouragements should not be distributed via the Form 1040.
In addition, these tax credit changes add excessive complexity to an already complex Tax Code - and refundable credits encourage and result in excessive tax fraud
* I oppose limitations on investment in IRA accounts. Savings and investment must be encouraged.
* As for the changes to the corporate tax rate, I am glad the rate is lowered for “small business corporations”. The GOP Tax Act change to a flat 21% tax rate resulted in a significant tax increase for many smaller corporations.
I do not necessarily oppose the increase in the top corporate tax rate. However, I do believe corporations should be allowed a “dividends paid” deduction – subtracting dividends issued to shareholders from corporate net taxable income. This would do away with the double-taxation of corporate profits, and encourage corporations to pay out dividends to reduce tax liability instead of trying to be “creative” a la Enron. In addition to allowing for this deduction on corporate returns I would repeal the lower capital gains tax rates for individuals on qualified dividends (while keeping the lower rates for long-term capital gains) – as there would no longer be a reason for this.
So – I have given you my thoughts on the proposals. What are your thoughts?
TTFN
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