Joan Crain’s job is to guide the wealthy through complicated financial decisions where mistakes can cost millions of dollars. That task is proving particularly tricky now thanks to Joe Biden’s proposed tax plan and the lack of clarity over what the Democrats will pass.
“We have to calm them down,” said Crain, global wealth strategist at BNY Mellon Wealth Management. “We don’t know what’s going to happen.”
Rich Americans and their advisers have known taxes could be going up at least since January, when Democrats won two Senate elections in Georgia that gave them effective control of both chambers of Congress.
Now the lawmakers are pushing to raise taxes on Americans earning more than $400,000, with proposals that hike rates on corporations and capital gains. They’re also seeking to increase funding for the Internal Revenue Service and close a variety of loopholes that millionaires and billionaires have come to rely on.
What’s still up in the air though—and will remain uncertain until either President Biden signs a bill into law, or the whole effort collapses in Congress—is almost everything about the tax package, including which rates Democrats ultimately set and even when its various provisions go into effect. That’s making it particularly challenging for wealth advisers to figure out exactly how Democrats might force the rich to pay more.
“We have to look at every client to see where they’re going to be vulnerable tax-wise going forward,” said Crain.
Capital Gains Tax
In April, Biden and the White House laid out one plan, which alarmed the super wealthy with a proposal to almost double their tax rate on long-term capital gains—to the level that wage income pays—while requiring taxes on those gains be paid before assets are inherited.
Then, a House plan approved by the Ways and Means Committee this month scrapped that idea, merely proposing to raise the top capital gains rate to 25%, from 20%. But, after breathing a sigh of relief, advisers to the wealthy soon realized the bill contained language that would kill off some of the most popular ways the richest 0.1% legally circumvents taxes.