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The fight in Congress over emerging tax increases on the wealthy took a dramatic turn on Monday with a slew of unexpected proposals from lawmakers.
A House committee tasked with drafting the tax law needed to pay for the Biden administration’s $3.5 trillion spending plan issued a detailed look at what increases on wealthy individuals and corporations might look like.
The surprising and unexpected picture from the Ways & Means Committee, the birthplace of tax legislation in Congress, significantly scales back some of President Joe Biden’s original increases, but it also adds new ones. Lawmakers are expected to vote on the draft, which includes a higher corporate rate of 26.5%, later this week.
Here’s how financial advisors are reacting and what they need to know right now about the potential impact on their wealthy clients:
Capital gains rate
The committee proposed increasing the top capital gains rate to 25% from 20%. With the 3.8% levy for the Affordable Care Act (also known as Obamacare), the new rate would effectively be 28.8%, well below the 43.4% Biden was seeking.
The slightly higher rate would go into effect Sept. 13, not retroactively to last April as Biden had originally proposed. The old rate would apply to investment gains and losses for transactions initiated before the effective date but not yet closed out.
“That is a great outcome — it’s still one of the most favorable rates out there,” said Mallon FitzPatrick, a managing director and principal at wealth management firm Robertson Stephens in New York.
It’s also a sign, he said, that Biden’s wish to end...