The sweeping legislation contains tax code reform, health care provisions and climate change action. What does it mean for physicians?
While unexpected, last Wednesday evening brought a deal between Senator Joe Manchin (D-WV) and Senate Majority Leader Charles E. Schumer (D-NY) on a bill touted as “Inflation Reduction Bill.” It was a surprising U-turn from Manchin, who reportedly previously vowed to block most of President Joe Biden’s bills that featured tax hikes. The new legislation looks to enact tax code reform, work against climate change, and cut healthcare costs.
If passed, it will be the largest tax increase in some time; the deal is intended to raise approximately $739 billion in accumulated taxes largely through eliminating loopholes. The revenue would be used to fund initiatives to support the goals of the bill, in addition to lowering the budget deficit. This would be processed as an investment of $400 billion over 10 years, with the remaining approximately $300 billion serving as a budget deficit reduction
So, what’s in the bill and how does it affect physicians? Let’s review some of the highlights of the bill:
Looking at the impact of the bill on individual taxpayers, a Joint Committee on Taxation found that for those earning under $400,000, the tax increase would initially be slight. However, by 2031, the various credits and subsidies may prove to be more of a boon to higher-income individuals; at that time, over than 60% of the projected revenue could be coming from those making under $400,000 annually, according to some Republicans on the Senate Finance Committee.
This is likely not the final form of the legislation, but these are the main points that the bill currently includes. Though a far cry from the initial Build Back Better proposal, it will still mean tax increases for individuals with an earned income over $400,000. The White House signaled Wednesday with a statement from President Biden that the administration fully supports this reconciliation bill, and Biden encouraged both the House and Senate to work to approve the bill before the upcoming recess.
Even before the legislation moves any further, physicians who are high-earners should prepare for potential changes and keep abreast of the situation as Congressional talks continue. To put themselves in the best position, physicians should speak to their financial advisors and CPAs to explore tax planning tools such as cost segregation, defined benefit plan establishment, and ROTH IRA conversions to lower overall taxes and be prepared to handle tax code changes in the future.
Syed Nishat is a partner, Wall Street Alliance Group. Syed has been regularly quoted in Medical Economics, Medscape, KevinMD, MedPage Today & Forbes. He can be reached on LinkedIn and on Twitter @syedmnishat.
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This article was published by our sister publication, Medical Economics.