Important for Big “I" members, the budget includes proposals to increase the corporate tax rate, capital gains tax and an end to the "stepped-up basis" allowing the tax free passing of investments to heirs after death.
Late last week, President Joe Biden released his fiscal year 2022 budget, which includes several proposals that could have significant effects on independent insurance agents. It is important to note that presidential budgets are non-binding and generally act as a roadmap for what priorities presidents would like to see Congress act on.
President Biden's topline budget request for 2022 is $6 trillion and contains details regarding his tax proposals included in the American Jobs Plan and American Families Plan.
As expected, the budget includes an increase in the corporate tax rate from 21% to 28%. It would increase the top marginal rate for individuals to 39.6% from the current 37%. Additionally, for all households making more than $1 million, the plan would tax capital gains as ordinary income at a rate of 39.6%, up from the current rate of 20%. When added to the existing 3.8% Medicare tax on investment income, the new top-level rate for wealthy individuals would be as high as 43.4%.
Important for Big “I" members, the budget notes that the effective date for the capital gains rate increase is “after the date of announcement," which means that the capital gains tax proposal is retroactive and, if enacted, would likely be effective after the initial April 28 release date of the American Families Plan. Furthermore, Biden's budget calls for ending a tax preference known as "stepped-up basis" that allows people to pass investments to heirs tax free at the time of their death.
Notably for independent agents, the president's budget does not call for any changes to the 20% tax deduction for small businesses that was created in former President Donald Trump's Tax Cuts and Jobs Act. However, it is important to note that even though it is not in President Biden's budget, some Democratic members of Congress have signaled they would like to see the deduction limited. With that in mind, the Big “I" remains vigilant and continues to strongly advocate against Congress making any negative changes to the small business pass-through deduction.
In another piece of promising news, President Biden's budget includes no cuts to crop insurance. This is good news for the program as tens of billions of dollars in cuts to crop insurance have been included in presidential budgets for the better part of the last decade under presidents of both parties.
In other budget news important to insurance agents, President Biden's budget pledged to end “the abusive practice of misclassifying employees as independent contractors." Although the budget did not specifically mention the Protecting the Right to Organize (PRO) Act, which would change the way workers are classified, it did pledge to work with Congress to “strengthen and extend protections against misclassification." Additionally, the budget includes a 12% increase for the Department of Labor's Wage and Hour Division, which deals with worker classification issues.
As Congress considers President Biden's budget proposal in the coming weeks and months, the Big “I" will continue to provide updates through the weekly News & Views e-newsletter.
Wyatt Stewart is Big “I" assistant vice president of federal government affairs.