New Tax Legislation Introduced – What to Expect

Hook Law News | Sep 17, 2021 | Letha Sgritta McDowell

Earlier this year we reported President Biden’s tax plan which included items such as raising the corporate tax rate, raising the highest marginal income tax rate, eliminating the step-up in basis at a taxpayer’s death and revising the estate tax scheme to be similar to the capital gains tax we are currently familiar with. These proposals were simply President Biden’s suggestions for changes to the tax system. While an important insight into what may be proposed in the way of legislation, it was not actually legislation itself. Instead, proposed tax legislation originates in the House of representatives through the House Ways and Means Committee. This past week, the Ways and Means Committee released its first round of proposed tax legislation.  The proposed legislation included some of the following provisions of note to taxpayers

  • Creation of a new 3% surtax on individuals with modified adjusted gross income of more than $5 million annually. Trusts and estates with income of $100,000 or more would also be subject to the 3% surtax.
  • Expanding the Net investment income tax of 3.8% to include income derived from a trade or business for individuals with income of $400,000 or great ($450,000 for married filers) as well as for trusts and estates.
  • Increasing the highest marginal tax rate to 39.6% which subjects those taxpayers to a federal income tax of 46.4% because of the 3% surtax described above and the 3.8% net investment income tax
  • Increasing the highest capital gains tax rate to 25% which then actually subjects capital gains to a tax of 31.8% because of the 3% surtax and the 3.8% net investment income tax
  • Permanently disallowing net business losses for individual taxpayers (currently business losses not used in the tax year can carry the loss forward and deduct the loss in subsequent tax years)
  • Reducing the estate and gift tax exemption to $5 million with the index for inflation.
  • Imposing new contribution limits for IRAs and requiring higher required minimum distribution amounts for taxpayers with retirement accounts exceeding $10 million.
  • Eliminating the ability to contribute to a Roth IRA for certain tax payers who are in the practice of contributing to a traditional IRA and then rolling the contribution into a Roth IRA.
  • Requires grantor trusts to be included in a taxpayer’s gross estate.

The bill also includes other changes to business tax rates and structures, makes changes to charitable contributions by some businesses, and increases tax on foreign income for US companies. While the bill is dense and includes a number of changes which may affect individual taxpayers, it is critical to remember that this is simply a starting point for tax negotiations. This week the bill is in markup which is the process by which a bill gets amended and changed before being introduced to the House.

While not finalized, the proposed legislation is the first we have seen from the current administration and gives us some more idea of what to focus on with respect to income tax and estate planning. For example, President Biden’s initial proposal in the spring included a change in the way estate and gift tax would be calculated and collected but the bill introduced this week by the Ways and Means Committee does not include that change.

Hook law Center will continue to monitor and stay abreast of changes to all tax proposals to ensure clients receive the most accurate and up to date advice.

Ask Dan

Hook Law Center: Hey Dan – why do dogs and cats shed more in the fall?

Dan: Hello reader! Dogs shed periodically as old hair dies and new hair grows but many pet owners notice more shedding in the spring and fall. When nights grow longer and the days start to cool, many dogs shed their light summer coats and replace those light coats with thicker and warmer winter coats. Much like their owners shed shorts and t-shirts for jeans and sweatshirts – dogs (and cats) get their winter gear ready as well.

Letha Sgritta McDowell

Attorney, Shareholder, CELA
757-399-7506 | 252-722-2890
[email protected]

Letha Sgritta McDowell is a Shareholder of Hook Law practicing in the areas of estate planning, elder law, special needs planning, estate and trust administration, asset protection planning, long-term care planning, personal injury settlement consulting, guardianships & conservatorships, and tax law. Ms. McDowell’s clients range from high-net-worth individuals with over $75 million in net worth to families with limited assets.

Ms. McDowell is a past President of the National Academy of Elder Law Attorneys and was named as a Fellow of the prestigious American College of Trusts and Estates Council (“ACTEC”) in 2020. She is certified as an elder law attorney by the National Elder Law Foundation (“CELA”) and Board Certified as a specialist in Elder Law by the North Carolina State Bar Board of Legal Specialization. Furthermore, McDowell is accredited to prepare and prosecute claims with the Department of Veterans Affairs.

Ms. McDowell is currently the chair of NAELA’s strategic planning committee, a member of the Board of Directors for the North Carolina Chapter of NAELA, and a member of the Board of Directors for the Purdue Center for Cancer Research. She is the former Chair of the North Carolina State Bar’s Elder Law Specialization Committee and is the former Editor-in-Chief of “Gray Matters”, the newsletter for the Elder Law Section of the North Carolina Bar Association. She is a consultant for InterActive Legal and has worked on several law and technology initiatives including IBM’s Watson project. Along with her experience practicing as an attorney, she has dedicated much of her time writing for national publications including, but not limited to: Wolters Kluwer,, the NAELA Journal, Trust & Estates Magazine and many more.

Practice Areas

  • Elder Law
  • Estate & Trust Administration
  • Estate Planning
  • Asset Protection Planning
  • Long-Term Care Planning
  • Special Needs Planning
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