In November 2020, voters in the United States will elect their next president. In addition, all seats in the U.S. House of Representatives, as well as about a third of the seats in the U.S. Senate, will be in play.
Thus, the elections will determine whether one party will control the White House as well as both chambers of Congress beginning in early 2021 or whether there will continue to be “divided government” at the federal level.
The Republican presidential nominee is the current president, Donald J. Trump. The Democratic presidential nominee is the former vice president in the Obama Administration, Joe Biden.
President Trump’s federal tax agenda is generally well known, with his accomplishments including the 2017 major tax legislation commonly called the “Tax Cuts and Jobs Act” (TCJA). Democratic nominee Joe Biden’s federal tax agenda is still emerging.
KPMG on August 4, 2020, released a report that provided in a “frequently asked question” (FAQ) format a high-level overview of Biden’s proposed federal tax agenda. That report is updated today.
Read the KPMG report (FAQs) [PDF 1.8 MB] updated as of August 24, 2020.
|This report has been superseded by a February 2021 report [PDF 2.4 MB] that includes preliminary observations regarding the potential tax legislative agenda of the Biden Administration and the Democratic-controlled Congress.|
Text of a new FAQ (added August 24, 2020) is as follows:
Possibly. While rare, there are historical precedents for tax rate increases having applied retroactively.7
For example, the Omnibus Budget Reconciliation Act of 1993 (“OBRA ‘93”),8 which was enacted on August 10, 1993, generally provided for higher income tax rates for some individuals and corporations effective for tax years beginning after December 31, 1992.9 OBRA ’93 also reinstated the two highest estate and gift tax rates that had expired at the end of 1992, effective for decedents dying, gifts made, and generation-skipping transfers occurring after December 31, 1992.10
In terms of the “legality” of retroactive tax law changes, the Supreme Court has upheld some retroactive changes to existing tax laws against challenge under the “due process” clause of the U.S. Constitution. As discussed in Mertens Law of Federal Income Taxation:
Retroactive taxation is allowed because taxation is neither a penalty imposed on the taxpayer nor a liability which the taxpayer assumes by contract, but rather a method of apportioning the cost of government among those who enjoy its benefits and who must bear the resulting burdens. In addition, some limited retroactivity may be necessary as a practical matter to prevent the revenue loss that would result if taxpayers, aware of a likely impending change in the law, were permitted to order their affairs to avoid the effect of change.11
The treatise proceeds to explain that “it is common practice to enact income tax laws covering an annual period that includes the date of enactment so that the effective date precedes that date of enactment.” The treatise also notes that there may be more a constitutional restraint on making a wholly new type of tax retroactive than a restriction on retroactively changing an existing tax.12
Nonetheless, as suggested in FAQs 7 and 8, ultimately what changes lawmakers decide to make, as well as when those changes are enacted and are effective, can be expected to be affected by political and other factors (including the state of the economy) – and some of those factors might weigh against significant retroactive changes. As a result, even though it might be possible for legislation to be enacted increasing tax rates retroactively (e.g., to the beginning of the year of enactment), it is by no means certain that a possible Congress controlled by Democrats and a possible Biden Administration ultimately would choose to do so.
7Some other kinds of tax law changes also have had retroactive effective dates. For example, some proposals (such as proposals aimed at perceived abuses) have had dates effective retroactive to when first announced, introduced, or approved by a tax-writing committee. A detailed discussion of effective dates is beyond the scope of these FAQs.
8Public. Law No. 103-66.
9Individuals could elect to pay the increased tax liability attributable to the new rate over a 3-year period without interest or penalty; fiscal year corporations were required to use a “blended rate” for the fiscal year that included January 1, 1993. OBRA ‘93 was enacted during the first year of the Clinton Administration. President Clinton was sworn into office on January 20, 1993. Thus, the rate increases applied to a portion of January during which George W. Bush was still president.
10Even some prospective tax law changes have had retroactive elements. For example, the Tax Reform Act of 1986, which was enacted on October 22, 1986, generally eliminated preferential treatment of capital gains for tax years beginning after December 31, 1986. However, the provision generally applied even when the sale or transaction that gave rise to the gain occurred in a prior year.
11See Mertens §4.15, Retroactivity. Case cites omitted from quote. See also Treatise on Const. L. § 15.9(a)(iv), Retroactive Tax Legislation.
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