Policy/Legislation
How Biden 1031 Tax Plan May Impact Small Investors: CNBC reports that President Biden’s plan to reel in 1031 exchanges on transactions with gains exceeding $500,000 could have far-reaching implications, financial experts say, especially with the call for an increase in capital gains taxes. ADISA strongly opposes the Biden proposal. Although President Biden claims to target the wealthy, 84% of 1031 exchanges were by smaller investors, according to a 2020 survey by the National Association of Realtors. The survey also shows that 68% of participants expected rent increases if 1031 exchange changes occur, further hurting the middle class.
Blow to Farmers: The Wall Street Journal reports that Biden’s package would also likely deliver a blow to American farm owners. For generations, farmers have used 1031s to cheaply and quickly relocate farm operations to lands with better soil, diversify the crops they grow and consolidate land holdings. Some have used it when exiting the farming business at retirement. The Journal reports that farm owners in 2012 held 915 million acres, about 40% of the land in the continental U.S.
VP, Dem Senators Push Ahead on Massive Tax, Spending Bill Without GOP Input: Vice President Harris, Senate Majority Leader Charles Schumer (D-NY) and other top Democrats are working behind the scenes to put together a massive tax, infrastructure and jobs package that is increasingly likely to pass without any GOP votes, The Hill reports. Democratic senators are jockeying to get their priorities added to the proposal — a sharp contrast to the small group of moderate Republicans and Democrats who are trying to craft a slimmed-down compromise measure.
GOP Opposed: The Hill reports that Senate Minority Leader Mitch McConnell (R-KY) said on Monday that he expected no Republicans would support President Biden's sweeping $4.1 trillion infrastructure package. "We're open to doing a roughly $600 billion package which deals with what all of us agree is infrastructure," McConnell said. "If it's going to be about infrastructure, let's make it about infrastructure." While Biden’s proposal includes money for roads, bridges and broadband, it also expands into manufacturing, in-home care, housing, clean energy, public schools and union organizing.
PRO Act in The Mix: Senate Banking Committee Chairman Sherrod Brown (D-Ohio) is pressing leadership to include the PRO Act in any infrastructure and jobs package that passes under budget reconciliation. ADISA opposes the Pro Act, which has not passed the Senate on its own at this juncture. According to a US Chamber of Commerce report, “organized labor has been hemorrhaging members for about 65 years, and labor leaders continue to look for ways to reverse that trend.”
Higher Costs, Less Revenue: Biden’s new spending proposal on education, child care and paid leave would cost more money and raise less revenue than the White House estimates, leaving a funding shortfall of $1.2 trillion, according to a new analysis from the Penn Wharton Budget Model. The research group said Biden’s package would cost $2.5 trillion, which is $700 billion more than the White House estimated. And the University of Pennsylvania researchers say proposed revenue increases would raise $1.3 trillion over 10 years, not the $1.5 trillion forecast by the administration.
Capital Gains Going Higher: The Wall Street Journal reports that President Biden’s tax proposals would increase the top capital-gains rate to 43.4% from 23.8%. Biden’s plan would also claw back some benefits Congress gave to those slightly less wealthy who have been spared from the estate tax but now could face capital-gains taxes at death. The average combined state-federal top rate on individual’s capital gains for all states would exceed 48% under the Biden plan, according to the Tax Foundation. Fourteen states would have a top rate above 50%. Combining the estate tax, the new higher capital gains rate and the repeal of step-up in basis could bring total effective marginal rates on inherited wealth as high as 61%, CNBC reports. Corporate income taxes would be the highest top rate in the industrialized world, averaging 65.1 percent¸ according to the Tax Foundation.
Regulation
DOL and the PRO Act: The Wall Street Journal reports that the Biden administration blocked a Trump-era regulation that would have made it easier for businesses to categorize gig workers and others as independent contractors, and signaled it would take a tougher enforcement stance against employers on worker classification. The Labor Department said Wednesday it is nullifying a rule it completed in early January that sought to make it more difficult for a gig worker, such as an Uber or DoorDash driver, and other workers to be counted as an employee under federal law. The PRO Act, which ADISA opposes, would change the definition of an ‘employee’ to include potentially what are now independent contractors. Federal law does not permit independent contractors to unionize.
DOL Working on Additional Fiduciary, ESG Rules: Pensions & Investments reports that more guidance and rule-making initiatives from the Department of Labor's Employee Benefits Security Administration are expected this year on a host of issues, including lifetime income, environmental, social and governance investing and fiduciary investment advice. Ali Khawar, acting assistant secretary for EBSA, reported in a webinar that the Labor Department's work on the fiduciary investment advice issue is not done and defining "who is a fiduciary?" — a long debated question — is "another area of focus for us.”
SEC Commissioner Calls for More Accredited Investors: Crowdfund Insider reports that SEC Commissioner Hester Peirce last week called for allowing for greater flexibility in determining who is an accredited investor. “We need to open additional doors to accredited investor status, such as educational credentials. We laid the groundwork for such an opening in our most recent accredited investor rulemaking. Now we need to act on it, and the Commission specifically invited this Committee to 'make further recommendations, including additional certifications, designations, or credentials that further the purpose of the accredited investor definition.'"
