Dueling Infrastructure Bills & Higher Taxes: What You Need to Know

Are you tired of hearing about taxes? Me too. But here we are. Let’s dive in. So, 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.¹ 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?

Well, my crystal ball’s about as clear as mud right now, but let’s break down what we 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 Biden 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.

How likely is it that any 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. I think it’s very unlikely for an increase to be retroactive. There is too much opposition from both sides of the aisle. Bottom line, I do think that higher taxes are coming. But I’m not sure that they will be as big or far-reaching as the Biden administration wants. With so much uncertainty around taxes, now is not a time to panic, but to think carefully and make adjustments where needed. 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.