Potential Tax Impacts of the U.S. Election

Following the United States presidential election and Georgia run-off elections, which resulted in Democratic control of the Senate, the Democratic Party now controls all three branches of the U.S. government. These results put Joe Biden in a stronger position to pursue his legislative agenda to fulful his campaign promises, including tax reform. While he does not have unilateral decision-making power, some proposed key changes may impact the U.S. tax landscape. These changes could include:

Business/Corporate Tax:

• Increasing the corporate tax rate from the current flat rate of 21% to 28%
• Re-establishing an Alternative Minimum Tax (AMT) for companies that have book incomes of $100 million or more (AMT was repealed entirely under President Donald Trump’s Tax Cuts and Jobs Act of 2017)
• Doubling the Global Intangible Low-Taxed Income (GILTI) rate from 10.5% to 21%, which will impact Controlled Foreign Corporations (CFC).

Personal Tax:

• Increasing the top individual rate (for taxable incomes above $400,000) from 37% to 39.6%
• Taxing Long Term Capital Gains and qualified dividends at the top 39.6% rate on income above $1 million, and eliminating the step-up in basis (capital gains).

Estate and Gift Tax:

• Reducing the total lifetime estate and gift tax exemption amount to $3.5 million (down from $11.7 million in 2021) and increasing the top rate to 45% (from 40%)

These tax changes are significant and, if implemented, will have a substantial impact on those who own U.S. businesses or hold U.S. investments. If you have any questions about how the potential U.S. tax changes may impact you, please reach out to our U.S. Cross Border Tax Specialist, Irfan Zaki.