7 minute read
In his first State of the Union address, President Biden gave a glimpse into how he intends to pivot his economic agenda after the apparent defeat of his sweeping Build Back Better initiative in the Senate. Instead, he focused on a four-point plan to address broader economic concerns, including inflation, increased taxes for high income individuals and growing the job base in America.
President Biden said,
“Let’s provide investments and tax credits to weatherize your homes and businesses to be energy efficient and you get a tax credit; double America’s clean energy production in solar, wind, and so much more; lower the price of electric vehicles, saving you another $80 a month because you’ll never have to pay at the gas pump again.”
How can US taxpayers interpret this? It likely means new tax credits for homeowners and those who take advantage of clean energy. Additionally, we may see a renewed push for electric vehicle credits, though perhaps not quite as high as the proposed $12,500 credit that was included in Build Back Better.
President Biden said,
“Let’s provide investments and tax credits to weatherize your homes and businesses to be energy efficient and you get a tax credit; double America’s clean energy production in solar, wind, and so much more; lower the price of electric vehicles, saving you another $80 a month because you’ll never have to pay at the gas pump again.”
It’s clear the Administration is still looking for ways to increase taxes on the very wealthy. One area that continues to be brought up as a pay-for is reducing the estate and gift tax exemption before the scheduled reduction. For those making substantial income or who have significant assets, tax planning will become increasingly important. President Biden continued to promise that households making less than $400K a year will not see a tax increase, though that would likely apply to households with wages of that amount.
President Biden said,
“Let’s provide investments and tax credits to weatherize your homes and businesses to be energy efficient and you get a tax credit; double America’s clean energy production in solar, wind, and so much more; lower the price of electric vehicles, saving you another $80 a month because you’ll never have to pay at the gas pump again.”
If a 15% minimum corporate tax becomes a reality, it will be an increase for many businesses. It’s clear the President is attempting to close loopholes in the tax code to ensure that more tax revenue comes in. All this will translate into a greater need for tax professionals to stay up to date on the many changes that could be rapidly taking place, along with a greater demand for business tax planning.
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President Biden said,
“Folks, that means make more cars and semiconductors in America. More infrastructure and innovation in America. More goods moving faster and cheaper in America. More jobs where you can earn a good living in America. Instead of relying on foreign supply chains. Let's make it in America.”
Is this a hint that the R&D credit could become more of a priority moving forward? There hasn’t been much news on the R&D credit since last year with the proposed FDII deduction appeal, but that could soon change. News out of Washington of bipartisan support for an increased R&D credit certainly supports the idea that this could become an even bigger incentive for businesses.
Additionally, this could signal a push for credits or other incentives for businesses that make products in America, including energy manufacturing changes under IRC 48C. This has bipartisan support, including support from key democratic Senator Joe Manchin.
President Biden said,
“Folks, that means make more cars and semiconductors in America. More infrastructure and innovation in America. More goods moving faster and cheaper in America. More jobs where you can earn a good living in America. Instead of relying on foreign supply chains. Let's make it in America.”
Raising the minimum wage to $15 an hour has been a hot topic for several years now, although it’s still not clear if there will be enough support to make that actually happen. Even without legislation, major employers like Amazon, Walmart and Costco are already meeting or exceeding $15/hr, increasing the pressure for other businesses to meet that to remain competitive. Small businesses keeping up with market wages may feel their profits taking a hit from increased wages and costs of business. In this case, they may look for ways to save on taxes with their costs skyrocketing.
In addition, paid leave could go hand in hand with a new payroll tax. Jurisdictions like Washington, DC, have already initiated legislation like the Universal Paid Leave Act, which provides employees up to eight weeks of paid parental leave and six weeks of paid family leave.
President Biden said,
“Folks, that means make more cars and semiconductors in America. More infrastructure and innovation in America. More goods moving faster and cheaper in America. More jobs where you can earn a good living in America. Instead of relying on foreign supply chains. Let's make it in America.”
What is President Biden’s plan to fight inflation? He wants to lower the cost of making goods, not lower wages for Americans. In his vision, lowering costs will lead to more American manufacturing. Whether he can get more cars and semiconductors made in America remains to be seen, but the goal is clearly to create more infrastructure and innovation in America to make goods move faster and cheaper.
Along with fighting inflation by curbing foreign supply chains and fostering home-grown economic expansion, perhaps the Administration will be looking to increase taxes on imports, which could directly impact businesses that deal with international suppliers.
Overall, the President’s message hasn’t changed much from the intentions he’s stated previously. He’ll continue to look for ways to increase taxes on wealthier individuals. This could be done through higher income tax rates for top earners, greater estate taxes and increased capital gains rates, among other agendas.
Businesses, meanwhile, can continue to expect a push for minimum wage increases and higher corporate tax rates. If anything, President Biden’s State of the Union speech confirmed his already revealed tax agenda. For this reason, both businesses and individuals should be looking for ways to tax plan now.
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