Most investors buy with the intent to expand, and do so by planting seeds into newer and growing properties, which is called building equity. If investments are kept within a close circle, there are ways to bear the fruit of the labor without government interference. Investments like this are referred to as a like-kind, or “1031” exchange.
The Biden administration is introducing a new economic plan that will remove the right to defer federal tax payments on realized property-investment gains that are projected as being worth over $500,000. The move is in an effort to raise taxes on those with higher investment opportunities to increase funding for the American Families Plan.
“Get rid of a loophole allowing Americans to make over $1 million a year and pay a lower tax rate on their capital gains than Americans who receive a paycheck,” US President Joe Biden proposed during his first joint address to Congress.
“CEOs make 320 times what the average worker in the corporation makes,” he added, pointing out that only 1% of Americans were considered millionaires and billionaires.
The American Families Plan is a proposed $1 trillion bill allocated towards providing free child care, paid leave, universal preschool for 3- and 4-year-olds, two years of community college and expanding health care. The measure is related to Biden’s “Build Back Better” agenda, which focuses on generating human capital by reinvesting into the system in a way that would increase the desired outcome of institutionalized education.
For low-income families, the plan would provide an incentive to increase family growth while maintaining a tax bracket that will ensure a fixed amount of income built within the federal system.
“Trickle down economics has never worked. It is time to grow the economy from the bottom and middle out,” Biden boasted to a round of applause.
For those with property investments that span across long-term financial safety nets, the suggested plan will allow the federal government to take from the profits of realized investments and push them towards the maintenance of generating human capital.
The like-kind exchange has been a part of the US tax code since 1921, when it was originally intended for farmers to participate in the fair exchange of liquid assets, like cattle. For the Biden administration, this form of independent transaction has been taken advantage of by the limited few who are allowed to make above the suggested federal amount of earned income.
As long as income is kept below $500,000, investors can maintain the freedom of better controlling their cash flow without the federal government focusing too much on the generated value of their assets.
The American Family Plan is expected to be pushed by some Democratic lawmakers as it includes a $200 billion allocation to the Affordable Care Act and a boost to the child tax credit. Politicians like Sen. Bernie Sanders (I-VT) encourage passing of the bill because it is a push forward towards the overall fight for universal health care.
For some Republicans, it will be a fight against undoing the tax cuts put into place by former US President Donald Trump in 2017. The Tax Cuts and Jobs Act of 2017 also limited the use of like-kind exchange when dealing with farmer-style tactics of trading as-is equipment by allowing the exchange to be financially viewed as a necessary business upgrade, rather than an individual non-taxable sell.
Through this form of tax cuts, investors are able to reinvest in themselves through a form of self-employment tax set at a higher rate than the original depreciated value of the old business equipment. This kind of self-generated wealth is the reason why many view the top 1% of earners in the US as benefiting the most, when under the proposed American Family Plan, the only difference is the government decides on the allowed gain and worth of the investments.
— Sen. Marsha Blackburn (@MarshaBlackburn) April 28, 2021
The vote for Biden’s package, if pushed through Congress, will increase IRS funding by $80 billion in an effort to target realized investments and generate over $700 billion in profit for federal services in the next 10 years.