This is an Election Year — Part 1

This is an Election Year, and as is common practice on the election campaign trail —

Tax is a Hot Topic

Let’s Step Back in History Before We Move Forward

As I watched the first presidential debate and recap some of the campaign promises, I found myself reflecting on part of my later college years and a few words of wisdom provided by the school’s Career Development Center. We were warned to avoid certain topics during an interview, one of which is politics. In today’s culture, I wonder if this is still wise guidance being infused in the minds of today’s graduates.

In a culture with little or no room to have an opinion that differs — Disagreement. We are bullied either to be for or against — zero tolerance for an amicable disagreement, so it may be better to trod “safely.”

Keeping within those boundaries, it may be helpful to recap the definitions for democracy and republic — two ways a governing body may use to govern its country and its people.  According to Encyclopedia Britannica:

“Democracy is ruled by the people. The term is derived from the Greek dēmokratia, which was coined from dēmos (“people”) and kratos (“rule”).

A Republic is a form of government in which a state is ruled by representatives of the citizen body. Modern republics are founded on the idea that sovereignty rests with the people, though who is included and excluded from the category of the people has varied across history.”

If you want to understand the difference between a republic and a democracy — here is an article from Dictionary.com. 

The above definitions are what each should be — the reality may be experienced quite differently. 

Now let’s get back to reality — Taxes

We have experienced both presidential candidates with their respective governing styles, and as such, we have something more than just promises to work with. Before we get into the article, both administrations were resourceful. So, how have individuals and small businesses been impacted by the tax laws enacted under the Biden and Trump administrations so far?

Four key takeaways for planning:

1. Businesses and independent contractors can plan for the expiring deduction.  
2. Individuals and businesses can still take advantage of the vast number of available credits.
3. Savings plans — consider moving funds into retirement and high-interest savings accounts.
4. Consider passive income streams — rental income (being a landlord is still one of the most well-paid passive income streams).

This is a two-part historical view article; we will first share some highlights under Biden’s administration and then share some highlights under Trump’s.

The article will highlight two wins and two losses of each administration. Several other areas have been impacted under the enacted tax laws of both administrations. (You may want to research them).

Part 1 – Under the Biden administration, two major tax reforms are the $1.9 trillion American Rescue Plan Act of 2021 (ARPA), and the American Rescue Plan. The other is the Inflation Reduction Act (IRA), signed on August 16, 2022, and running to 2031. It is estimated to cost $780 billion through 2023.

Wins

• The ARPA of 2021 was used to aid public health and economic recovery from the COVID-19 pandemic. The plan included emergency funding to various states and local governments and extended unemployment & child tax credits. It also included funding for vaccines and rent payment benefits. Many individuals became first-time homeowners, while others benefited from historically low mortgage interest rates. This plan favors lower-income individuals/families, states, and local governments. 

• In March 2023, some commentators noted the IRA as one of the largest investments in the American economy, energy security, and climate preservation. This is an innovative (individual and business) and climate-friendly law. Here is how McKinsey describes it: “It seeks to improve US economic competitiveness, innovation, and industrial productivity — read more here.  

Losses:

The unfair tax definition for “higher income” creates discrimination among certain taxpayers. Due to the low threshold to qualify for these credits, some middle-class and higher-income taxpayers couldn’t take advantage of some of the credits. Other than the home efficacy types, other credits favored lower-income taxpayers.

• ARPA came under great criticism by some employers and the House Budget Committee, which pointed out that the plan encourages laziness because there was less incentive for many individuals to return to the workforce due to the “extended unemployment bonuses.” 

• Under IRA — there are credits galore for individuals and businesses — across most industry sectors — however, in one area (before 2024) — the EV credit discriminated against individuals earning over $150,000 for single filers ($300,000 for married couples).

In part 2, we will take a similar approach and share some historical highlights of the Trump administration.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.