BY CONNOR STEENS
From re-joining the Paris climate accords and revoking construction permits for the Keystone XL Pipeline to increased taxes and a COVID-19 task force; Joe Biden’s first steps in his presidential shoes have seen a series of executive orders that have been ready and waiting since his initial campaign in 2020. What more can be expected from the Biden administration?
Firstly, considering the aforementioned actions, Biden looks to waste no time in emphasizing his stance on the matters surrounding climate change. As promised during his campaign, the US will re-join the Paris agreement. While no binding policies will be created, the US will be required to present its emissions targets to the UN at the Climate Change Conference in November. With further goals to boost the reliance on clean energy and sustainable practices, a $2 trillion investment is expected to propel the country to net-zero carbon emissions by 2050. Cancelling the controversial Keystone pipeline presents another action taken to advocate for environmentalism, much to the disappointment of Canadian PM Justin Trudeau. With the first steps taken, we can expect to see US resources diverted into the promotion of clean energy and environmentally friendly infrastructure.
Economically, Biden has pledged to reverse corporate tax cuts, increasing the corporate tax rate to 28% from the current 21%, and to alter the Gifts and Estate tax exemptions introduced by Trump’s Tax Cuts and Jobs Act of 2017. Individual tax rates also look to increase to 37% from the current 29.6%. Proposed changes to the Gifts and Estate tax exemption include lowering the lifetime exemption to $3.5 million per individual, from the current $11.58 million. The considered changes promise to collect an additional $4.0 trillion in taxes by 2040, with 90% of these collections coming from wealthy individuals and businesses.
Further information on Biden’s tax plan is available in our previous article, ‘Strategize for the Democrats’ Tax Plan’.
Biden has also set forward his “Made in America” plan, with hopes of creating 5 million jobs through a progression of large domestic investments. Notable expenditures include a $400 billion procurement investment aimed at powering demand for American products, materials and services, as well as a $300 billion investment in research and development in breakthrough technologies, with the intention to develop high-quality employment in the future of manufacturing and technology.
With COVID-19 still at the forefront of global concerns, it is no surprise that Biden’s administration will be tasked with confronting the rapid spread of the pandemic. Biden announced that a team of advisers will be appointed to both guide and direct the pandemic response leading into 2021. The pandemic response will be facilitated with a $1.9 trillion plan that aims to expand COVID-19 vaccinations and assist individuals in a bid to jump-start the economy. Vaccination and testing units would be established among communities, along with a $1,400 stimulus check per person, subsidization of child care, a temporary boost on unemployment benefits and a federal minimum wage raise from $7.25 to $15 per hour. Additional funding for small business plans will also aid in stimulating the economy.
As Joe Biden takes his place as the 46th President of the United States, the expected increase in federal expenditure is expected to come from the increased taxes on those earning over $400,000 per year, as well as larger corporations as we see their tax liabilities increase. While the middle class are provided with tax relief and financial benefits, high net worth individuals can expect to see a significant increase in their tax burden.
The close of 2020 saw Southpac’s involvement in unprecedented numbers of new offshore trust and company registrations as clients scrambled to protect their assets during times of unprecedented uncertainty and to lock in the current gifting exemptions for the benefit of their estates and their descendants. Many commentators believe that a number of the tax changes referred to above, especially the reduction in the lifetime gifting exemption, will be made effective as of 1 January 2021. However, others take the view that the Biden Administration may struggle to introduce the changes retroactively and does not have the appetite to take on this fight while its energies are focused on the pandemic response and economic recovery, so there may still be time to take advantage of what are still historically favorable gift and estate tax provisions.
Through the appropriate use of offshore structures as part of their estate plans, HNWIs may still be able to access significant tax savings while protecting their assets from future creditors. For more information, get in touch with Southpac’s asset protection specialists today.