With the inauguration of President Biden and Democratic control of both the U.S. Senate and the U.S. House of Representatives, look for significant changes in federal policy, including taxes.
Democrats are in control of the White House, the Senate, and the House, although with historically slim majorities.
At 50-50 in the Senate and 222-212 in the House, Democratic majorities are exceedingly slim, which will constrain the Democratic agenda. Democrats will have almost no margin for error when trying to pass legislation on the floor.
Unless Democrats vote to eliminate the filibuster (not expected), Senate process requires 60 votes to pass legislation. For most issues, the filibuster rule will prevent significant public-policy changes.
The filibuster rule can be set aside in limited cases through a special process called budget reconciliation, giving Democrats an opportunity to go bigger on tax and healthcare legislation. Both Obamacare in 2010 and the Republican tax bill in 2017 were passed through budget reconciliation.
Under unified Democratic control, another coronavirus relief package is possible. Because Democrats will need Republican votes in the Senate, this is not a foregone conclusion. Direct support in the amount of $1,400 per person is the most likely area of agreement.
Democrats will have the votes to raise the top personal income-tax rate to 39.6% and establish a new wealth tax on income above a certain level. These wealth taxes are high on the agenda of Democratic tax writers.
Although some Democrats do not support raising the corporate rate during the current crisis, accelerating vaccinations and a recovering economy may change that calculus. Action on a corporate tax increase is likely.
Bipartisan pro-annuities retirement legislation becomes less of a priority under singleparty control as compared to divided government. SECURE 2.0 is still in play and well positioned, but its path forward becomes more difficult.
The Biden administration is expected to propose a new Department of Labor Fiduciary Rule. This could largely affect the life insurance industry.
During the campaign, President Biden supported returning the estate tax to 2009 levels when the top rate was 45% and the exemption was $3.5 million per individual. There is less energy around an estate-tax increase than other proposals, but some reduction in the exemption aligns well with Democratic priorities.
The Pacific Life Government Relations team works at the federal, state, and international level to support public policy that helps families save for retirement and safeguard their financial security.
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This material is for informational purposes only, and any opinions set forth in this material are based on information available to Pacific Life as of January 20, 2021.
For more information on retirement-planning strategies, please contact the Retirement Strategies Group at (800) 722-2333, or email us at RSG@PacificLife.com.
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