As of November 19, 2021, the House of Representatives passed the “Build Better Back Act” (BBB). The modified economic package consists of spending $2.2 trillion over the next ten years to expand health care, battle climate change, and reconstruct the nation’s social programs. The House-passed bill includes several tax-code changes to offset the cost of these proposals, which could potentially impact individual investors and wealthy taxpayers.
The original draft proposed a profusion of increased tax rates for wealthy individuals, increased capital gains taxes and dividends for wealthy filers, and a contraction in the amount of assets heirs can inherit that are exempt from the estate tax.
The revised legislation includes a new surcharge on the wealthiest taxpayers (5% for those who have an AGI of $10mil or more, and 8% for those who have an AGI of $25mil or more), a significant increase in state and local tax deductions (SALT), and several changes to retirement savings.
The bill now moves to Senate for debate. Additional modifications will likely be made in order to win the majority vote. If Senate passes an updated version of the legislation, it will have to return to the House of Representatives for a final vote.
In the meantime, here is a look at what is currently on the table regarding tax provisions:
| Proposal | Comments | IN or Out? |
| Individual income tax rates | Increase the top rate from 37% to 39.6% for individuals with over $400,000 in income. | OUT |
| Surcharge on wealthy individuals | A 5% surcharge would apply to individuals with an income over $10 million, and an 8% surcharge for individuals with an income over $25 million | IN |
| Capital gains | A new top rate of 25% on capital gains and dividends for individuals with an income of $400,000 or higher | OUT |
| Estate tax | Eradicate the step-up in basis or reduce the number of inherited assets that would be subject to estate tax | OUT |
| State and Local Tax deduction (SALT) | Increase the $10,000 deduction cap to $80,000 until 2030 | IN |
| Backdoor Roth IRA conversions | Individuals would be restricted from converting after-tax contributions to a traditional IRA or 401(k) beginning in 2022 | IN |
| Corporate Minimum Tax | Establish and impose a 15% minimum tax on corporations to prevent the use of loopholes and incentives in the tax code to pay a lower rate | IN |
| Cap on aggregate retirement account balances | Individuals with aggregate savings of $10mil or more in tax-advantaged retirement accounts and income above $400,000 would be prohibited from making additional IRA contributions starting in 2029. Individuals would also be required to take required minimum distributions (RMDs), regardless of age. For individuals with savings balances beyond $20mil, more rigid distribution requirements would apply | IN |
| Roth conversion limits | Roth IRA conversions would be restricted for individuals earning more than $400,000 or married couples earning more than $450,000 beginning in 2032 | IN |
| Billionaires’ tax on unrealized gains | Place an annual tax levy on unrealized gains for individuals with $1 billion or more in assets | OUT |
So, what does this mean for you? For now, it is simply a matter of waiting. No changes have taken place as of yet.
We understand that policy changes can affect your wealth and financial planning needs. Contact us at any time if you have questions about upcoming changes to legislation. Rest assured that Spectrum’s team of experts is watching closely for updates on potential tax changes and bill approval.
In the event new legislation comes to pass, we are prepared to provide creative solutions to help you live life by design and maintain your financial independence.
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