Biden’s Budget Bill (and it how it might apply to you)

Recent headlines have been dominated by discourse surrounding Biden’s proposed $3.5 Trillion “Build Back Better” plan, and the recent negotiations looking to trim it. Here’s a quick update on where those negotiations stand, and how the bill may affect you.

When first proposed, the $3.5 trillion plan sought to (among other expenses) fund universal preschool, 12 weeks of paid family and medical leave, expand Medicare, and extended child credit payments. The proposal sought to pay for these expenses with provisions such as tax rate increases, and modifications to the estate and gift tax structure. Recently, Senator Sinema (D., Ariz.) has expressed opposition to tax rate increases, forcing Democrats to look for other sources for tax revenue. The alternative, the so-called “billionaire’s tax,” fundamentally changes the way the extremely wealthy would be taxed. 

In short, it seems increasingly likely that even if you are taxed at the highest income tax bracket, your tax rate won’t increase. The current “billionaire’s tax” targets individuals with over $1 Billion in assets, or those with an annual income of over $100 Million for three straight years. 

What may affect you is the drop of the gift and estate tax exemption to pre-Trump-era levels. Back in 2011, the estate tax exemption was set at $5 Million, with small increases each year to account for inflation. As part of the 2017 Trump Tax Cuts and Jobs act, Congress doubled the exemption, where it remains today ($11.7 Million for an individual, and $23.4 Million for a married couple). This exemption shelters both lifetime taxable gifts and wealth transfers made at death. Put another way, people who owned less than $23.4 Million at death didn’t need to worry about the estate tax. The current budget plan looks to reverse the doubling, bringing back the exemption to 2011 levels. Once adjusted for inflation, this is estimated to be $6 Million per individual and $12 Million per married couple in 2022. For those couples with more than $12 Million, proper and effective planning becomes more important than ever. 

Fortunately, even if these proposed changes do affect you, we here at Wood Law are well trained to ensure that you, your family, and your wealth are protected and taken care of. As always, if you have any questions about how these tax changes may affect your specific situation, please feel free to reach out and contact us.