Individual Tax Rates
The current US government administration is considering raising taxes for individuals & families, corporations and even estates. A recent CNBC article discussed how the Biden administration is looking to raise the top marginal tax bracket to 39.6% from 37.0%. Coupled with this is the likelihood of lower income thresholds for each tax bracket, which will make more Americans pay higher taxes.
There is also a proposal to increase the capital gains tax rate to 43.4% for millionaires. For estates, the administration is considering eliminating the cost basis step-up for estates assets with over $1 million in unrealized capital gains. The cost basis step-up, if eliminated, could impact small business owners as they try to pass their life’s work to the next generation.
Corporate Tax Rates
Early in the new administration, there was talk about raising corporate tax rates to 28% from the current 21%. More recent news on the subject indicate a softened tone looking to compromise on a new 25% corporate rate.
Before the TCJA (Tax Cuts and Jobs Act 2017), American corporations paid upward of 35%, which motivated some corporations to move their official headquarters out of the US into lower tax jurisdictions like Ireland or Bermuda.
Corporate taxes generally get passed on to consumers in the form of higher priced goods and services. Over time, higher corporate tax rates may slow economic growth and impact wages or employment as tax burdens compel companies to reduce overhead expenses. At the time of this writing, these were all still proposals. What becomes law is yet to be determined.
Over the last few decades, global warming has become a much-discussed topic around the world. There is some debate about whether climate changes are part of a natural evolution of the planet or directly the result of manufacturing and other man-made factors.
Regardless of the cause, governments are enacting policies to limit the impact human beings have on the world’s atmosphere. Proponents of these policies point toward crude oil, natural gas, and coal (all carbon-based energy) as the enemy of the environment and something that must be stopped, or at the very least severely limited.
According to a June 7th, 2021 Barron’s article, in June 2021, US Crude production was at 10.8 million barrels per day (mbpd), down almost 18% from March 2020 levels of 13.1 mbpd. Certainly, a portion of the decline stems from reduced demand from COVID related economic shutdowns.
Once demand returns to pre-pandemic levels, will US producers return to pre-pandemic output levels? The US government has already shut-down development of a major pipeline and restricted drilling in oil-rich Alaska and on federal lands. If these policy trends continue, domestic output levels could be further restrained, putting the US in danger of relying more on foreign energy sources again.