KPMG’s Principal-In-Charge, Federal Legislative and Regulatory Services John Gimigliano joins the On the Move panel to discuss the details of Joe Biden's expected tax plan.
ADAM SHAPIRO: One of the key issues that we want to hear from Mr. Biden are the details, perhaps, of his tax plan. In fact, KPMG up through August 4 had at least a snapshot of what we can expect. So John, what can we expect?
JOHN GIMIGLIANO: Well, good morning, Adam. Thanks for having me. As you outlined, the Biden plan is a little untraditional in that it isn't very detailed. I think the Biden campaign has made a calculation that they're not likely to win or lose this election based upon the tax plan, believe it or not. So what can we expect?
I think you can expect-- in many ways, you can look at it as a carryover from some of the things we saw from the Obama administration-- higher taxes for a lot of people. Corporations and wealthy individuals are really kind of the centerpiece of the Biden plan. But there are some specific tax benefits going to narrow areas like some for residential real estate, some for people working from home and that sort of thing as well.
JULIE HYMAN: Hey, John, it's Julie here. How do you think-- if Biden does end up winning, how do you thread the needle on raising taxes at a time when we're in a crisis, right? The economy is distressed. So in other words, if there are tax increases, can individuals and corporations, for that matter, expect that maybe they would come later? They wouldn't come on day one as Biden gets into office. Is that something he's going to push for?
JOHN GIMIGLIANO: That's a good question, Julie. We've spent a lot of time on-- at KPMG asking ourselves that very question. Clearly, we're going to have to see what the economy looks like when we get to early 2021 in this scenario where, of course, Biden wins. And, of course, the Democrats would have to win the House and the Senate to make a lot of this real. Then the question is, would they push forward with tax increases in an economic recovery?
The answer to that is we don't know. I would just suggest, though, it might be easier to raise taxes on wealthy individuals in that scenario, or at least easier than raising them on businesses. And perhaps the business tax increases could wait until we're in a stronger recovery.
BRIAN CHEUNG: Hey, John, it's Brian Cheung here. So it would seem to me like one of the landmark features of Biden's tax plan is that minimum book tax, which would set that minimum rate of 15% on firms that have $100 million or more in income. But I'm wondering, if we look back in history, how closely does actual policy end up tracking what they aspire to float out there on the campaign platform? So I guess another way of asking this is if Biden is the next president of the United States, do you think that the tax plan could ultimately change, given what the forces in DC are, with things tending to moderate, I guess, if you will, based on what they were promised on the campaign trail?
JOHN GIMIGLIANO: You're right. And history tells us that very often, presidential tax plans don't become a reality. There are a few instances where presidents really ran on tax. I think George W. Bush was a good example, where he was able to carry that through in his administration.
But we can't ever forget that in the end, the president can only do one of two things when it comes to tax legislation-- sign it or veto it. Why? Because Congress has to write the law. And so if you're the chairman of the Ways and Means Committee or you're the chairman of the Senate Finance Committee, the tax writing committees in Congress, they are going to have the pen. They are going to drive the agenda.
And really, the most that the administration can do is to try and influence it from the outside in. So it gives us good information directionally. But the details, we're just going to have to wait to see what Congress will produce.
ADAM SHAPIRO: Well, we kind of know some of the details. We know that Biden wants to go to 28% on the corporate tax. Gary Cohn was on this program more than a month ago saying, actually, you could go there. And he was the architect of tax reform.
But what about the income proposals? Biden's talking about higher taxes for people who make $400,000 or more, plus a capital gains change. Maybe it's an increase. But it's the way they calculate it, right?
What does that mean to high wage earners? I think all of us would gladly suffer the tax and have the income of $400,000. But what does it mean?
JOHN GIMIGLIANO: Well, the 39.6% proposal for what we call ordinary income-- these are wages, right? That's not a dramatic change. That was the rate during the Obama years. And that's a modest tick up from 37%.
Where it is more dramatic is what you just suggested, Adam, which is the capital gains rate, where we go from really the low 20s all the way up [INAUDIBLE] points and make those wage-- that wage income and capital income equal, thereby taking away this incentive that we currently have today to prefer capital income over ordinary income. And it really will affect investors. I mean, investors will be hit most directly by that change. And it would be pretty dramatic.
JULIE HYMAN: So John, when you're talking to clients about all of these changes, historically, when we have change-- have had changes to taxes, how soon do corporations and individuals anticipate them and start to make changes based on that anticipation? So, in other words, we're looking at company balance sheets right now and what they're doing with income. Are they already starting to position themselves?
JOHN GIMIGLIANO: Well, the one thing all my clients are saying is they are modeling out what they can of the Biden plan, right? They just need to know what that world looks like. Are they actually doing anything I think is premature. We've got to get through the election, of course, see what happens.
And then remember, it will take time to enact these things. And one of the questions that I get the most is let's just imagine that these tax increases did get enacted. Are they for 2021? Are they for 2022? All really good questions.
Would they be effective immediately, would be effective in the future, or even potentially retroactively? The Clinton tax increases in '93 applied retroactively. So those are all scenarios that people are trying to model.
ADAM SHAPIRO: All right, John Gimigliano is KPMG's principal-in-charge, Federal Legislative and Regulatory Services. Good to have you here.