July 19, 2023
Here it is. The Biden tax plan, laden with initiatives that will never happen, but will convince the true believers of the left that he is pulling for them. Some of these may become law, so pay attention! That seems to be a theme with this administration; come up with eye-catching but impossible “solutions” that will never come true.
The tax plan is long, so I will highlight 6 major areas that would impact investors.
One– Quadruple the Stock Buyback Tax Penalty for Corporations
Companies buy back their stock because they believe it is a good investment. This is a direct benefit to us! Stocks go up when more shares are bought than sold. Companies buy back billions of shares with 100’s of billions of dollars. The stock goes up when they do. Further, it reduces the number of shares available. So, when earning are shown, we know that those earnings are applied more to our shares.
Earlier in the year the Biden admin passed the comically named “inflation reduction act.” Republicans couldn’t stop it. Squeezed into the bill was the 1% penalty on companies who want to buy back their own stock. In the new tax bill, they will be trying to get the stock buyback penalty raised to 4%. A 4% penalty for the company should lower the share price, penalizing the evil shareholders.
The “Inflation Reduction act” was a Powerball win for “the energy transition.” GM and Ford were the birthday boys as Biden made the $7500 rebate on electric vehicles extend until 2032. He also added a $4,000 rebate to people who buy used EVs, (under $25,000) which have notoriously horrible resale value. The used car must be purchased through a dealer. Many do not understand supply and demand, acting as if it isn’t real. Any product that is subsidized makes it simple for a company to raise the price of the product.
Two– Increase capital gains taxes
This is a government that drools for cash like Heroin crazed junkies. After all, their vote buying budget must be maintained. Biden’s budget proposal would nearly double the capital gains rate to 39.6%. Don’t panic yet, that is only for people who over $1 million in income. Okay, panic now. There’s lots of people who make more than a million a year and it could be you! Now or in 10 years, you may hold appreciated assets like property or in stocks. When you sell, that capital gain is added to your current income. It’s easy to imagine selling a 2 million dollar property or portfolio with 1.5 million in unrealized gain. Now you owe almost 40%, not counting state tax on those gains.
Since the wealthy does this regularly. CEO’s, professional athletes, surgeons, entertainment people would all be subject to the increase. They trade large amounts of real estate and stocks. In California the state income tax is 13.3% for high earners. Who is going to sell and lose 50%? This would be a disaster for the stock and real estate market and create a flood out of California. Into your state!, or Nevada, Washington, Florida, Wyoming, South Dakota Texas, Alaska, Tennessee and New Hampshire with no state income tax.
The birthplace of Amazon-in the garage
Three- Increase Tax Rates on Corporations
The plan is to raise the corporate tax rate from 21% to 28%. Jeff Bezos, started Amazon out of his garage in 1995. It wasn’t that long ago. Some people who act like these mega-corporations were just set up and given to rich people. Jeff Bezos, like all of them, was broke or working on borrowed money. The S&P 500 companies employ 10’s of millions of employees. These are great jobs with greater benefits. All offer paths to higher and higher earnings.
Apple $22.00 starting. Average salary $83,000 to $194,000
Amazon $18-$26.00 Average salary. $52,000 to $89,000. Many warehouse jobs.
Microsoft $22.00 starting. Average wage $63.44. Salary $190,000-$230,000
Walmart $15-$19 to start with a $17.50 average. Salaried: $55,000 to $99,000
These 4 companies employ 4.285 million employees. The tax base that these workers create is enormous. They comprise much of our national revenue.
“Since this is a fresh source of ruination that Biden hasn’t enacted yet, this gives him a new weapon in pursuit of ruining America, the greatest country in the world.”
Four– Eliminating the protection appreciated asset in your estate.
Currently, if your kids inherit your Microsoft stock that you bought for $20,000 and is now $300,000 they don’t pay anything on the gain. The change would make the gain taxable to heirs. This protection has been in place for 102 years. Since this is a fresh source of ruination that Biden hasn’t enacted yet, this gives him a new weapon in the pursuit of ruining America. This probably will fail since politicians all have appreciated assets. This includes passing down your life’s work, your business.
It is touted on a tax of the “rich,” but it’s not. Most have capital gains in their homes. If sold while alive, they get a 500k capital gains exclusion for a personal residence. The kids don’t get that exclusion. So, if you die with an appreciated house the kids would have to pay capital gains tax. Can you imagine the kids trying to get mom and dad out of the house before they die and leave them to pay on gains? Fun.
Five– making us pay for unrealized (phantom gains)
This takes the stupid badge right out of the gate. Biden got the idea to tax you on that Microsoft stock you bought for $20,000 and becomes $100,000 before you ever sell it. Also, for citizens worth $100 million or more he wants us to pay retroactive taxes back until 2021. Can you imagine the problems? Like your investment you paid taxes on going to zero? Getting accurate valuations and taxing real estate gains? Almost no chance of passing. This would be devastating for the economy and kill the stock market. What happens if you lose all of those gains? Do they pay you back? This includes real estate. Who will do valuations on all that property? This would be a big disincentive to buy stocks and real estate.
Six– Restore and increase the child tax credit
This was enacted for Covid. Covid will end in 2000 and never for “progressives.” This restores the credit and makes it payable retroactively, back to where it was stopped. It would increase the $2,000 child tax credits to $3,000 and to $3,600 for kids 6 and under. This was NOT ever a “tax credit.” A tax credit is a dollar for dollar rebate on taxes paid, usually to change behavior, like buying a new EV. The child “tax credit,” is mainly for people who pay 0 in federal income tax, which is half the county, so there is no tax to credit back. It is simply free money, and it is not taxed.
It’s a pure giveaway. However, since it may encourage people to have kids, not dispose of unborn ones and hopefully maintain families, I could be live with it.
That’s it for now. This tax plan for 2024 probably won’t pass the worst of the above.
Next time: Why Can’t People accumulate wealth? This blog will be a copy of my first Substack article on August 1st.
What is Substack? Substack began in 2017,. Some are calling it the future of media. It’s transforming both how we view journalism and media as a whole. Why has the platform seen so much success? In short, because it is so easy to use, and supports the creativity—and the creators—and let’s readers choose content and information they want from unlimited sources. Writers are from the unknown to the well known. Please join my Substack. SUBSTACK.COM/@CRAIGVERDI -It is free to join this year.
Please forward to a friend!
To comment on this post: email me at [email protected]
See you soon,
Craig