Creekmur Wealth Advisors

Will the Infrastructure Bill Impact Taxes?

Written by Creekmur Staff | 2:00 PM on June 8, 2021
Are you tired of hearing about taxes? You're not alone! Over the past year with all of the new government spending, talk of increasing taxes has been consistently present in the news-stream.

But regardless of how we feel about taxes, there are a lot of new and changing developments in this national conversation. So, let's dive in.

Currently in our two major political parties we've got dueling infrastructure bills, plus a big proposed budget with lots of spending (and higher taxes inside). That's a lot of expensive legislation on the table!

What's going to happen next?

The Democrats and Republicans seem pretty far apart on their respective infrastructure deals, which opens up the possibility that Democrats could go it alone and try to pass a package entirely without Republican support.That would be very difficult to accomplish.

It's also possible that both parties could align around a smaller bill and then the Democrats attempt to pass any extras through budget reconciliation.

Bottom line, we don't have enough clarity to know what a final infrastructure deal will look like. Given the political hurdles, the debate might drag on through summer.2

How likely are taxes to go up?

Our crystal ball is about as clear as mud right now, but let's break down what we do see on the table.

President Biden's $6 trillion proposed budget offers a lot of spending and higher taxes to pay for it.3 None of these tax hikes are a surprise as they are in line with what the president has promised before.

Wealthy taxpayers are looking at a higher top income tax rate, higher capital gains taxes, and the loss of the step-up basis on inherited assets.

Corporations are also in the line of fire, facing an increase in corporate tax rates, which could affect profitability.

That's currently what's on the table.

However, Biden's desire to raise taxes faces major headwinds (even inside his own party). His proposed budget is very much a wish list and will face challenges getting approved by legislators.4

It's very possible that some (or all) of these proposed tax hikes will get axed during negotiations.

Is it possible that tax hikes will be retroactive?

One of the big shockers coming out of recent tax news is that the higher capital gains taxes could be made retroactive to April 2021.5

There is historical precedent for this as it has happened a number of times before.6 However, retroactive tax changes are often for tax decreases.

At this point it seems unlikely for an increase to be retroactive. There is too much opposition from both sides of the aisle.

Bottom line, it's not a stretch to think that higher taxes are coming. We will be watching for signs as to how big the increase will be and how far-reaching.

With so much uncertainty around taxes, now is not a time to panic, but to think carefully and make adjustments where needed.

There's a lot going on in the economy and Washington. As always, we'll keep you updated along the way, but if you have any questions or concerns, please reach out. That's what we're here for!

sources:

1 https://www.usatoday.com/in-depth/news/politics/2021/05/30/biden-infrastructure-plan-sides-odds-social-infrastructure/7451554002/

2 https://www.rollcall.com/2021/05/28/budget-release-starts-a-process-that-will-run-through-summer/

3 https://www.cnbc.com/2021/05/28/biden-budget-reiterates-top-capital-gains-tax-rate.html

4 https://www.foxbusiness.com/politics/bidens-capital-gains-tax-hike-proposal-faces-democratic-headwinds

5 https://www.marketwatch.com/story/biden-plans-retroactive-hike-in-capital-gains-taxes-so-it-may-be-already-too-late-for-investors-to-avoid-it-report-11622133899

6 https://www.natlawreview.com/article/capital-gains-rate-historical-perspectives-retroactive-changes

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.