Tax Change Proposals blog banner

Tax Change Proposals: Six Things to Keep in Mind

Andrew Subkoviak photo

Andrew Subkoviak, CFA

Senior Investment Strategist

More about this author


From COVID-19 recovery efforts to infrastructure and jobs proposals, President Biden had an ambitious first 100 days. Investors concerned about what it all means for their taxes should keep these simple facts in mind. 



President Biden unveiled the details of his budgetary plans in late April, along with his two infrastructure plans. The Treasury Department also released its much anticipated “General Explanations of the Administration’s Revenue Proposals”—also known as the Green Book—at the end of May. It turns out the moniker “Sleepy Joe” was inaccurate, at least judging by his first 100 days in office. In fact, Biden is making a few of his predecessors look sleepy in comparison. However, as we’ve approached midyear, things have slowed down as the Biden administration seeks bipartisan agreement on the nature and extent of infrastructure bills.


New monikers for a new approach?

What should we look for as “On-the-Go” Joe Biden squares off against the “Ramblin’ Republicans” and, ultimately, “Mighty Middling” Joe Manchin in the battle over infrastructure spending? Here are six things to keep in mind as the battle proceeds in Washington this summer:



  1. The proposals are subject to the legislative process. Biden’s narrowest-possible margin in the Senate means that any proposal will have to gain approval from all 50 Democratic senators for Vice President Harris to have a shot at casting the tiebreaking vote. Moderate Democrats like Joe Manchin and Kyrsten Sinema have significant say in what gets through the Senate. Furthermore, senators such as Mark Warner and Jon Tester have already raised some objections to some of the proposals. It’s a foregone conclusion a filibuster-proof majority is out of reach, and the bills will need to go through the budget reconciliation process.

  2. The proposals are subject to the legislative process. In the spirit of Fight Club’s second rule, it’s worth highlighting this fact again. These proposals are likely to be moderated, as bills going through budget reconciliation are temporary and intended to have no impact outside of a given budget window. If the current stalemate surrounding the traditional infrastructure in the American Jobs Plan is any indication, the more politically controversial social programs proposed in the American Families Plan—and its corresponding tax policy—may have a hard row to hoe.

  3. Loss of long-term capital gains (LTCG) treatment for taxpayers with adjusted gross income (AGI) greater than $1 million looks unlikely to pass as is. That said, the LTCG rate could increase to some compromised rate for the wealthy. Tax policy wonks suggest the revenue-maximizing capital gains tax rate and negotiations could land around 25% to 30%.

  4. The loss of LTCG treatment is notably different from other major tax provisions, in that the Green Book calls for an effective date of late April, effectively rendering it retroactive. The Green Book states, “This proposal would be effective for gains required to be recognized after the date of announcement.” The last retroactive tax increase came in 1993, and that was an income tax increase, not a capital gains tax increase. Look for significant pushback from lawmakers on this one; some have suggested it was included as a bargaining chip to work from. Nevertheless, if enacted, a retroactive tax increase would preclude the possibility of accelerating gains at preferential rates under the current tax regime.

  5. Cost-basis step-up abolishment is in play. There is a laundry list of special rules, however, including exemptions and exceptions for family-owned businesses, trusts, and partnerships. Some have previously pointed out that the combined impact of capital gains at death and estate taxes would suggest a 60% effective tax rate, if not more. To the contrary, the Green Book makes mention of deductibility of capital gains paid at death to estate taxes, but the mechanics and limitations are unclear. To that end, estate tax changes in the form of exemption decreases and tax-rate increases—on the agenda of candidate Biden—are not a part of the Green Book budget. The proposal to abolish step-up broadens the tax base for which taxes at death are due by applying a lower exemption amount ($1 million for individuals, $2 million for couples) without changes to estate taxation.

  6. Recently released and well-publicized IRS records of some of the wealthiest Americans have renewed debate about the disparity in tax outcomes in the United States. Although this long-standing feature may not have been a surprise to all, the reporting has highlighted that the US tax system focuses on income rather than wealth. Although a formal wealth tax isn’t a part of President Biden’s current proposals (notwithstanding his treatment of capital gains for earners over $1 million), is it a twist that could change the disposition of our elected legislator’s core constituents?

Always focus on tax management

The bottom line

The significant question remains when these proposals could or would be put to a vote. Debate, posturing, and pivoting are all well underway. Between the American Jobs Plan and American Families Plan, there’s a lot to cover before the congressional recess that begins on August 6. Look to late July as things begin to boil up; it’s possible that compromise could be reached by then, but many experts believe a vote in September or beyond is more likely. Otherwise, if bipartisan negotiations break down, the administration could move quickly on budget reconciliation, assuming that moderate Democrats’ objections and reservations are addressed. The COVID-19 stimulus legislation passed earlier this year shows that a resolution could be pushed through the reconciliation process in three to four weeks.

More to explore

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the Disclosure page on our website for important information about investments and risks.