As I mentioned last time, I would go over what I know about the Biden tax plan. I know about items that I believe may hurt investors. Before you get depressed and start drinking heavily, two warnings: None of these items have become law. So, please call your Congressperson. And we never really know the results of these changes. The White House has its team of advisors who think it will be good overall. He wants to raise capital gains from 20% to 39.6% on “the rich” (couples with over 1 million in income) Before you think that won’t affect you, think again. The 1 million can be a gained from assets that are sold, not just salary. There is no indexing for inflation on the 1 million mark. It won’t be long until most homes are worth over 1 million. Our baby’s starter homes will cost over 750,000 at the rate of increase of real estate which is about 4% per year.
Any asset with big gains (that puts your total income over 1 million) will be taxed at the new 40% rate plus state. Who is going to sell million plus dollar homes? or liquidate stocks with huge gains, if doing so pops them over 1 million in income? Many people will be at 1 million a year in income in 50 years. 3 more items that I see as not positive for investors:
- He wants to eliminate the “Stepped up basis on real estate, stocks and any investment that has gone up. This is one that hurts almost everyone, even if they only have a small amount of money. Currently, when heirs receive your appreciated real estate and stocks they pay no taxes on it. Say you inherited $500,000 in Stock. Your Dad, bought $50,000 in that stock in 1970 and that grew to $500,000. Currently you would pay nothing because the IRS says it is valued as of the time of Dad’s death, i.e. “stepped up” instead of valuing it at Dad’s cost in 1970. Biden wants to remove that huge benefit from the tax code. Under current law that money is received tax free. Under the new plan they would pay tax on the gain. In this case they would have to pay tax on the $450,000 gain. That amount would probably pop their tax bracket as well. This is the worst one for us and our kids. This would hurt real estate and stocks to the extent that people won’t sell due to tax. This is the one that has to fail, IMO.
- He wants to eliminate or lower the estate tax limits. For now, we have an estate tax exemption of 11.18 million. In other words, we don’t have to pay estate tax if our estate is under that limit. Biden wants to take that much lower or down to zero. Estate taxes are especially heinous since they tax wealth you have already paid taxes on. Add estate tax to losing the stepped up cost basis and our heirs will get peanuts. BTW, estate tax is 40%. Add that to paying taxes on the gains and you get 61% of your inheritance gone. That does not include state taxes which average 5% or so. So that brings you to 66% lost to taxes. Poof. This is a boon for lawyers. They will tell you they have a plan to avoid the estate tax. Usually, you end up talking to a life insurance guy and getting nowhere.
- He wants to raise taxes on Corporations from 20% to 28%. That is simply less profits per share which could hurt stock performance. Everyone wants to stick it to the corporations because some of them make a lot. For every Apple and Microsoft there are JC Penny, Sears, Compaq and Pier One Imports. All Bankrupt.
“Wealthy may face up to 61% tax rate on inherited wealth under Biden plan. CNBC, May 4th 2021”https://www.cnbc.com/2021/05/03/wealthy-may-face-up-to-61percent-tax-rate-on-inherited-wealth-under-biden-plan.html Warning: He spreads the falsehood that rich people will “get around it” by estate planning. This is just not the case.
When Obama was in he got a lot of grief for telling Joe the Plumber that we need to spread the wealth around.” Now we have a President who freely says we are going to squeeze you hard so we can spread the wealth around. In our faces. Almost makes me long for those Obama years. Almost.
Stupid thing of the week. I bought a new phone last week. An iPhone 12 pro. There was no charger in the box. But Apple has explained that:
As Lisa Jackson, Apple’s Vice President, Environment, Policy, and Social Initiatives noted during this week’s iPhone 12 event, removing the traditional accessories from all iPhone boxes from now on was made for environmental reasons. You may recall the company wants all of its products to be carbon neutral by 2030.
Yeah, we wouldn’t want them to miss their goal. As if they are a big polluters anyway. While China kicks out 10.6 billion metric tons of air pollutants per year, at least we know Apple is making fewer polluting chargers. Now this is the Epitome of lousy excuses. How many companies have stopped giving service and blamed it on Covid. My Couch was delivered and left on my porch because the delivery company wants to “keep us safe.” Global warming and the environment (while the US environment is way cleaner than when we were kids) will be the new master excuse. I didn’t have time to get sidetracked on pollution stats, but it is worth it to go to the EPA website and see how much less we pollute than in the 60’s and 70’s. That way you will be armed with facts when your neighbor starts “compost shaming” you. OMG!! They don’t compost, honey! Can you even imagine?!
And some Great News! Biden announced that the new Covid guidelines will give us the freedom to ride our bikes and walk the dog without a mask!! if vaccinated. And if all are vaccinated you may gather outside but not in large groups. So the government is now telling us these things that we didn’t know in the first place. I never dreamed you would wear a mask while biking, or even in their own car.
If you are vaccinated that is all you can do. If other people are afraid you will give it to them without a mask, they should go get vaccinated. or stay home under their bed shaking uncontrollably.
Remember two surges were in July and the big one in November and into 2021. Almost everyone wore masks then. So, masks can’t stop a surge. Every day the majority of Covid cases and deaths are from just 10 states. The bottom 40 have a very small amount of cases. And deaths and cases are plummeting in all states.
See you soon.
Craig