Planning for Tax Increases in 2022

Categories : Financial, News
April 14, 2021

TCJA, the Tax Cuts and Jobs Act of 2017 was a reflection of the policies of a newly elected President and his Administration. Although the law was passed in the first year of the Trump Presidency, it took effect at the beginning of the second year. That is the privilege and usual practice afforded to winners of national elections, subject to approval by Congress, and, if challenged, the Supreme Court. Generally speaking, a new President gets passed a reasonable portion of the winning platform.

This year we have a new President and a new Congress, and together they are formulating a new policy wish list. While not everything will ultimately pass, the taxing and spending proposals are substantial enough to concern taxpayers in all economic groups. Biden’s sudden and significant reversal in tax policy suggests that everyone should determine how the expected outcome will affect their 2022 tax situation.

Throughout the campaign, Biden insisted that no one making under $400,000 annually would receive even one penny of tax increase. Almost immediately, that was changed to families making more than $400,000 a year – a huge change for dual-income households.

The primary thrust of Biden’s tax increase proposal is toward corporations and high-income (not necessarily wealthy yet) people. Anyone who believes that they are exempted from higher taxes, based on these classifications, has an inadequate understanding of economics. Here are some points to ponder:

  • “Hidden taxes” are assessed at every level of societal economics in the form of inflation (erosion of purchasing power)
  • The Biden energy policy has already raised gasoline prices at the pump by about a dollar a gallon, affecting all of us
  • High-income earners and wealthy people provide capital in the markets, encouraging business growth, new jobs, and greater economies of scale
  • According to the American Enterprise Institute, a 1% increase in corporate taxes equates to a 0.5% decline in wages. Biden’s proposal to raise the corporate rate from 21% to 28% would thereby decrease overall wages by about 3.5%
  • Not only are tax hikes detrimental to wages, but many corporations are expected to reduce 401(k) matching funds and/or Company contributions

Increasing prices are on display across America. Everyone has seen them at the gas station, grocery store, and in your household bills. Even those who will receive no (initial) tax hikes are already being penalized by rising prices. Adding insult to injury is the flood of illegal aliens crossing our borders and usurping our jobs; jobs Americans are willing to do.

As was the case with JFK, Reagan, and Trump, tax cuts benefitted the entire country, and virtually all citizenry. That seems to be a hard lesson for many elected officials to learn.

We saved until last the prospect that individual tax rate cuts from TCJA expire at the end of 2025. With the White House and both houses of Congress controlled by tax hikers, there is only a remote chance that the TCJA cuts will be made permanent. In the absence of an extension, whether short or long, the resulting tax increases will affect everyone. Mostly negatively. The U.S. Government has only 2 sources of funding; fiat money from the FED, and taxes from the people.

Planning ahead, taxpayers should be sure that their withholding and/or Quarterly Estimates on Form 1040-ES are large enough next year to stay out of a penalty situation.

Van Wie Financial is fee-only. For a reason.