An Initial Look at President Biden’s Proposals
Wednesday, President Biden introduced the nation to his American Jobs Plan and Made in America Tax Plan -- plans that seek to alter the federal tax structure, boost America’s infrastructure, and address issues related to families. We have conducted an initial review of these proposals, specifically the tax changes, to consider their effects on the ESOP community. Below are some observations on how these proposed changes, as currently presented, may affect ESOPs.
Recognizing that these proposals will likely change as they move through the legislative process, we will continue to monitor and provide you with updates. For more information, click here.
One Highlight – Tax Changes that Affect ESOPs
President Biden’s proposal raises corporate taxes by a third, from 21% to 28%. Corporate taxes, however, will remain lower than the 35% rate in place before the Trump Administration enacted the Tax Cuts and Jobs Act of 2017. The proposal also seeks to roughly double the capital gains tax for anyone earning more than $1 million per year.
In general, an increase in the corporate tax rate makes the current tax treatments of ESOPs more attractive, which might encourage their formation and expansion. Furthermore, an increase in the capital gains tax also has the effect of making ESOPs more attractive to selling business owners under some circumstances where the 1042 rollover is currently available. As has been the case in previous years, TEA will continue to seek the expansion of the 1042 rollover benefit to all corporate structures from current law which is limited to C-corporations, and to better define and expand the definition of Qualified Replacement Property (QRP) for purposes of the rollover exchange.
Again, on both proposals by President Biden, we will work to keep you informed and continue advocating on your behalf and behalf of all ESOPs.
For Ongoing Information
For more updates on these and other ESOP policy matters, we urge you to sign up for the special email alerts available to members of our Employee Ownership Action Network (EOAN). EOAN members will get regular, detailed updates on federal legislation and proposed policy changes, along with calls to action to influence their representatives in Congress.