The State of the Union: Tax Policy is on the Agenda

By Leslie Heffernen, JD, LLM (Tax), CPA - Managing Director of Fiduciary & Legal Services


April 30, 2021 - President Joe Biden made news during his first address to a joint session of Congress on Wednesday night, offering a window into his administration’s spending proposals around infrastructure, education, and jobs, as well as the tax policy changes needed to pay for them.

President Biden has now proposed roughly $6 trillion in federal government spending since taking office, an injection of fiscal stimulus with few historical comparisons. The U.S. Treasury shows that Q1 2021 federal spending as a share of GDP – impacted significantly by a once-in-a-century pandemic – has far exceeded any level dating back to the early 1980s.

The President’s headline proposals include: 

  • An increase in the capital gains and dividend rate to 39.6%. Some argue that a substantial higher capital gains rate could curb the private investment needed to accelerate the post-COVID, 21st-century economy.
  • An increase to the corporate tax rate
  • An increase in the top income tax rate to 39.6% for income in excess of $400,000, a top tax rate last seen during George W. Bush’s presidency. 
  • A revision or repeal to the step-up in basis rules. A repeal is less likely. However, we may see a modification or limit on the step-up at death ($1 million).
  • Real estate limits including ending 1031 like-kind exchanges; eliminating the ability to defer capital gain tax on real estate exchanges for gains above $500,000. Many ultra-high-net-worth investors use this strategy to continue deferring capital gains tax until their death when gains can be passed on tax free to their heirs.
  • An increase in IRS audits. President Biden previously announced an allocation of $80 billion to the IRS for increased audit and collection efforts. 

Surprisingly, the Biden Administration did not mention the possible reduction in the transfer tax exclusion, which is currently $11.7 million, or an increase to the transfer tax rate to a minimum of 45%.

Altogether, if enacted, the top tax rates on the top earners could reach a level not seen in over four decades.

The key phrase, though, is if enacted – as what is floated in Washington, D.C. generally gets altered or even tabled in the face of political pressure. We expect much debate on these proposals, especially as President Biden works with narrow margins in Congress.

At Pitcairn, we are here to engage as a thought partner to help our clients navigate through these uncertain times, and we continue to stress the importance of proactive planning for potential change. We encourage you to reach out to your Pitcairn Relationship Manager to discuss estate and income tax planning strategies. 



About Pitcairn

Pitcairn is a true family office and leader in helping families navigate the challenges and opportunities created by the interplay of family and financial dynamics. Through Wealth Momentum®, an experience-based family office model, Pitcairn helps families achieve a more effective and complete experience. Since its inception, Pitcairn has partnered with some of the world’s wealthiest families to meet their needs and drive better outcomes – year to year, decade to decade, generation to generation. Today, Pitcairn is recognized as an innovator, guiding families through generational transitions and redefining the industry standard for family offices. The firm is located in Philadelphia, with offices in New York and Washington, DC and a network of resources around the world.