2022 Tax Update for Estate Planners and Family Businesses
Where Are We With Tax Policy?
Entering 2021, tax worries and changes in tax policy were at the forefront of discussion in the political, business, and estate arenas. Changes including removing the step-up in basis on capital gains at death, increasing the corporate tax rate, eliminating valuation discounts, neutering GRATS, increasing the capital gains rate on high incomes, and lowering the gift and estate tax exemption. All of which were all on the table as part of the Biden Administration’s agenda upon taking office.
As 2021 ended and 2022 kicks off, tax policy largely remains unchanged from a year ago. President Joe Biden’s Build Back Better (“BBB”) Act went through numerous iterations over the year and was politicked down from a headline program cost of $3.5 trillion to $1.7 trillion before ultimately being kiboshed by Senator Joe Manchin (D-WV) publicly pulling his “Yea” from the bill in late December.
But where does that leave estate planners and family businesses? There are three things estate planners and business advisors need to keep top of mind regarding tax policy in 2022.
1. Major Tax Overhaul Less Likely
A short column from Bloomberg Tax highlighted the President’s herculean task of resurrecting BBB heading into a contentious 2022 midterm election cycle, with multiple purple state Democrat Senators not named Joe or Kyrsten facing tougher reelection battles. The likelihood of major tax changes diminishes as the calendar approaches November 2022, and the polling would suggest Democrats may be less willing to pass sweeping changes in the face of a ‘red wave’ in the midterm elections. Watch closely: if nothing transpires early in the legislative calendar, the likelihood of major tax changes will likely dissipate until at least January 2025.
According to a report from The Hill, Democratic aides say the BBB bill won’t be ready for floor action any time soon and predict the wide-ranging legislation may have to be completely overhauled. Senate Majority Leader Chuck Schumer (D-NY) informed colleagues the Senate will begin focusing on voting rights legislation in the New Year, further signaling a shift from tax policy. After a year of tax consternation, it might be nice to ring in the new year with less tax anxiety immediately on the horizon.
2. Changes Still Lurking
Speaking during a radio interview, Senator Manchin offered a path to revive a skinnier version of the President Biden’s BBB bill. Senator Manchin said the legislation should go through Senate committees in order to examine any economic impacts and focus on rolling back the 2017 Tax Cuts and Job Act (“TCJA”) tax cuts.
