President Biden released a fact sheet on his just proposed changes to the tax system early on April 28.[1] We’ve seen quite a bit of discussion in the popular, financial and tax press about items in this proposal since its release, so we’ll summarize some of the key items here.

The 15-page document details more than just tax proposals, with the major tax proposals that have gotten a lot of notice found on the last two pages of the fact sheet. Some other tax-related items are found elsewhere in the document.

Warning – The Devil Will Be in the Details, and We Have None

It’s easy to overreact to such proposals, as many parties forget (or have a vested interest in ignoring) that this remains merely a proposal at this point in time. It’s not clear how much Congressional support would exist for passing this proposal “as is” and history suggests that there will be modifications, many likely significant, made to any bill if it becomes law—another thing that is far from a certainty.

While this does not mean we should ignore the proposals, it seems likely that time spent on understanding the nuances of a number of the items will turn out to be as valuable as time spent working out the details of the border adjusted tax that was a key proposal late in 2016, just as Republicans took control of the Presidency and both chambers of Congress. And right now we don’t have any bill text upon which you can even attempt to understand such nuances.

Considering possible actions should specific proposals become law is an appropriate step to take. But advising that clients take actions based on the proposals is far riskier, especially for any action that might bring regret if the laws are not enacted as you expect or fear.

So with those warnings in place, let’s look at what is in the President’s fact sheet.

Key Proposals

A summary of some of the key proposals is found below.

Reporting of cash inflows/flows for accounts by financial institutions: As part of a focus on increasing tax enforcement activities against higher income taxpayers, the law would add a provision that “would require financial institutions to report information on account flows so that earnings from investments and business activity are subject to reporting more like wages already are.”[2] Presumably that information would be used to identify audit candidates, and would likely require explanation of things such as the sources of funds coming into accounts in excess of reported income. The increased enforcement on higher income individuals is claimed to “raise $700 billion over 10 years.”[3]
The top marginal federal tax rate would go up to 39.6% from 37% for individuals: The proposal would restore the top marginal individual income tax rate to 39.6%. The fact sheet states: “The President’s plan restores the top tax bracket to what it was before the 2017 law, returning the rate to 39.6 percent, applying only to those within the top one percent.”[4]
The special capital gain rates will go away for “households making over $1 million”: One of the items that got immediate notice was the elimination of the lower rate on long term capital gains for certain taxpayers. While we are told that is for households making over $1,000,000, we don’t know if that’s adjusted gross income, taxable income, or some other measure. The fact sheet states “[h]ouseholds making over $1 million—the top 0.3 percent of all households—will pay the same 39.6 percent rate on all their income, equalizing the rate paid on investment returns and wages.”[5]
Significant reduction in step-up of basis on inherited assets. Potentially far more significant is the apparent taxation of excess appreciation in assets held when a person dies. The fact sheet provides: “Today, our tax laws allow these accumulated gains to be passed down across generations untaxed, exacerbating inequality. The President’s plan will close this loophole, ending the practice of “stepping-up” the basis for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions) and making sure the gains are taxed if the property is not donated to charity.”[6]
While not fully clear, it is possible that those gains in excess of $1,000,000 will be taxed under a mark-to-market system upon death. But note that the statement never explicitly says that. Arguably, if the gain is immediately subjected to tax it seems the basis would be stepped up, yet the sentence refers to ending the practice of “stepping up” basis. So the proposal could simply be to restore EGTRRA’s limited basis step-up at death—but, this time, without eliminating the estate tax in exchange for the loss of basis step-up
Obviously, details will be very important for this provision, including how and whether this will apply to assets passed to a surviving spouse. As well, since it comes in with gains in excess of $1,000,000, it would seem that if enacted it would bring back to estate planners individuals who had seen “death taxes” removed as a threat to heir’s future wealth.
The fact sheet also notes that some form of protection for family-owned businesses will be part of the proposed bill, noting: “The reform will be designed with protections so that family-owned businesses and farms will not have to pay taxes when given to heirs who continue to run the business.”[7]
Elimination of capital gains treatment on carried interests: An issue that was heavily discussed during the process of passing the Tax Cuts and Jobs Act is also raised in the fact sheet. While it had been proposed originally as part of TCJA to force income from carried interests to be taxed as ordinary income, the provision was watered down substantially in the final version of TCJA. Now the new Administration apparently wants to try again to change the tax treatment of such income. The fact sheet states: “The President is also calling on Congress to close the carried interest loophole so that hedge fund partners will pay ordinary income rates on their income just like every other worker. While equalizing tax rates on wages and capital gains will address this disparity, permanently eliminating carried interest is an important structural change that is necessary to ensure that we have a tax code that treats all workers fairly.”[8]
Elimination of like-kind exchange deferral for real estate gains in excess of $500,000. The Tax Cuts and Jobs Act eliminated like-kind exchange treatment for any assets aside from real estate held for income producing or business purposes. The new proposal would again reduce the number of transactions eligible for like-kind exchange deferral treatment, providing: “The President would also end the special real estate tax break—that allows real estate investors to defer taxation when they exchange property—for gains greater than $500,000...”[9]
Tax Cuts and Jobs Act limitation on the deduction of excess business losses for individuals made permanent. The fact sheet provides “…the President would also permanently extend the current limitation in place that restricts large, excess business losses, 80 percent of which benefits those making over $1 million.”[10]
Broaden the net investment income tax of 3.8% to apply the taxes consistently to “those making over $400,000.” The fact sheet provides that “Finally, high-income workers and investors generally pay a 3.8 percent Medicare tax on their earnings, but the application is inconsistent across taxpayers due to holes in the law. The President’s tax reform would apply the taxes consistently to those making over $400,000, ensuring that all high-income Americans pay the same Medicare taxes.”[11] It appears this is meant to insure that income in excess of $400,000 would be either subjected to Medicare taxes or the net investment income tax. Currently if a person is actively involved in an S corporation, any flow-through income the person receives from the S corporation is not subject to either Medicare taxes or the net investment income tax.
The IRS would be able to regulate paid preparers. The fact sheet also provides that the IRS would be able to regulate paid tax return preparers. The sheet states: “Tax returns prepared by certain types of preparers have high error rates. These preparers charge taxpayers large fees while exposing them to costly audits. As preparers play a crucial role in tax administration, and will be key to helping many taxpayers claim the newly-expanded credits, IRS oversight of tax preparers is needed. The President is calling on Congress to pass bipartisan legislation that will give the IRS that authority.”[12]
Make permanent or extend a number of individual tax credits added in the American Rescue Plan Act. The proposal looks to make permanent or significantly extend a number of new individual tax credits that were added on a temporary basis in the American Rescue Plan Act of 2021. These provisions include:
- Extend expanded ACA premiums tax credits in the American Rescue Plan
- Extend the Child Tax Credit increases in the American Rescue Plan through 2025 and make the Child Tax Credit permanently fully refundable.
- Permanently increase tax credits to support families with child care needs (the credit for child care).
- Make the Earned Income Tax Credit Expansion for childless workers permanent.[13]

[1] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, https://www.whitehouse.gov/wp-content/uploads/2021/04/American-Families-Plan-Fact-Sheet-FINAL.pdf (retrieved May 1, 2021)

[2] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 14

[3] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 14

[4] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 15

[5] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 15

[6] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 15

[7] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 15

[8] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 15

[9] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 15

[10] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 15

[11] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 15

[12] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, p. 13

[13] Fact Sheet: The American Family Tax Plan, White House website, April 27, 2021, pp. 12-13