“I think it is unlikely that the Congress will pass President Biden's tax increases,” said Herschel V. Clanton president of Chancellor Wealth Management Inc. in Atlanta.
“While it is possible that the votes in the Senate would break down to 50-50, with Vice President Harris breaking the tie, that assumes that all 50 Democrat senators are confident of their re-election." he said. "While we don't pretend to predict the future, we have been sharing this perspective with our clients. They are all aware of the White House proposals.”
The owners of “businesses where there would be liquidity issues and farms will both create a big barrier for these proposals,” Watson said. “There are proposals that would allow taxpayers to pay a tax over time, say eight or 10 years. But even that has poor optics.”
Making matters worse is the fact that Biden’s $6 trillion budget assumes that his proposed capital-gains tax rate increase took effect in late April, meaning that it would already be too late for high-income investors to realize gains at the lower tax rates if Congress agrees, the Wall Street Journal reported in May.
“Clients can’t wait to pay more of their ‘fair share,’” joked Jeff Farrar, co-founder, partner and executive managing director at Procyon Partners in Wilton, Conn. “Even Biden voters hate the fact he's raising rates and doing it retro is even more of a stinker. Clients’ anxiety is seven on a scale of 10. Even clients who won’t be directly impacted are worried about its impact on the equity markets."
Watson predicts Congress will likely pass a modified budget plan, but what the Biden administration and lawmakers decide to include and what will be removed remains to be seen.
If Democrats try to use reconciliation to pass their plans “they may only have one shot at it. The Senate parliamentarian said yesterday they can use reconciliation twice, but it can’t be purely to avoid a filibuster,” Watson said.
While the White House continues to lobby lawmakers, combining the budget with the Biden family and jobs plans “comes with an optics issues over the sheer size of the spending and tax increases.” Watson said.
Gregory Collier, president of Collier Financial Solutions Inc. in Mount Dora, Fla., agreed that it is likely that Congress will pass some form of tax legislation and said his clients have anxiety about it. “Many know that taxes will be increased on most taxpayers. The amount of proposed spending in Washington is a major concern,” he said.
The prospect of a retroactive doubling of capital gains taxes is also troubling, he said. “Yes, I am bothered that they would even consider proposing such high rates on long-term gains. Retroactive enactment does not allow for planning and mitigation strategies. However, it may benefit philanthropy,” Collier said.