Monthly LRA Update: January 2021

TAX DEVELOPMENTS

Biden Administration’s Business Tax Priorities

During the course of his campaign, President-elect Joe Biden identified numerous political and legislative priorities, ranging from pandemic response to environmental initiatives. With regard to taxation, the Biden campaign identified various policy priorities, and a number of leading accountancies, including KPMG, PWC, E&Y, Deloitte, and Grant Thornton, have published reports on them. It is our understanding that Biden has not released a single, comprehensive plan, and many of the provisions he has identified lack sufficient detail to assess their impact. However, the following are a few key elements that have been widely reported:

• Increase the corporate tax rate from 21% to 28%
• Impose a 15% minimum tax on companies that report GAAP income in excess of $100 million
• Institute an “offshoring tax penalty”
• Restore the top rate on ordinary income for individuals to 39.6% from 37% under TCJA, and
• Tax long-term capital gains and certain dividends at ordinary rates for individuals with income of more than $1 million.

The prospects for tax law changes are expected to be materially influenced by the Georgia Senate run-off elections on January 5. If Democrats win both seats, the Senate will be effectively split 50-50 and Vice President-elect Kamala Harris would be the tie breaker. This would increase the possibility of tax law policy changes being enacted through the Budget Reconciliation process (the same process that the Trump Administration used with the TCJA).

If Republicans win either of the Georgia Senate seats, they will maintain control of the Senate and diminish the chances of significant tax legislation passing. However, several experts have noted that there are a number of Republican tax priorities that could incent compromise to some extent.

Of course, if corporate tax rates increase from 21% to 28%, the tax equivalent yields of BOLI will likely improve for policyowners.