Biden’s tax plan…..

Summary

• Biden's proposed tax plan includes an increase in the top marginal tax rate to 39.6% after 2022, which isn't a surprise but indicates that high earners will pay more.
• Taxing long-term capital gains and qualified dividends at ordinary income tax rates for those making over a million dollars annually means a doubling of taxes on capital gains and could deter realizing gains, hoping for political change.
• Transfers of appreciated property by gift or at death becoming taxable dispositions could impact strategies for passing on wealth.
• The corporate income tax is rising to 28%, reversing a cut from the Trump administration, which affects C-corp retained earnings and necessitates careful planning for reinvestment vs. distribution.
• A minimum tax on income, including unrealized gains (20%), seems extreme and could drastically alter entrepreneurial risk-taking, potentially stifling growth and innovation in the U.S economy.
• Some other aspects of the plan limit deductions and exemptions, as well as changes that affect 1031 exchanges and carried interest, impacting real estate investors and private equity sectors.
• The psychology of the proposed tax on unrealized capital gains worries me, as it may penalize successful entrepreneurs, possibly lead to drained resources, or force the liquidation of assets prematurely which could undermine the incentive to innovate and disrupt the lifecycle of business growth.
• My suggestion is to decrease income tax dramatically, possibly to 0%, and increase capital gains tax since it would benefit workers who rely on income and may be a more equitable approach.
• Another idea is to implement a high 'death tax', which could potentially create a more giving society by incentivizing the wealthy to distribute their wealth before death, ensuring more efficient private allocation of resources compared to government allocation, and potentially bettering social systems.
• Such radical changes to the tax system would need to balance the need for entrepreneurship, innovation, and deep considerations for how wealth generation and distribution affect both society and the economy.

Video

How To Take Action

I would suggest focusing on how the proposed tax changes might affect your long-term investments and business strategies. If you're a high earner, expect to pay more due to the increase in the top marginal tax rate to 39.6%. A good way of dealing with this could be to seek out tax planning advice to optimize your finances within the new framework.

For those with appreciated assets, it’s now more crucial than ever to understand how potential changes to gift and estate taxes might impact your wealth transfer plans. You might want to consult with a financial advisor to explore alternative strategies for passing on wealth.

If you own a C-corp, the possible rise in corporate income tax to 28% means you'll need to weigh the pros and cons of reinvesting profits versus taking dividends. Look closely at your business structure and decide if another entity type like an LLC may make more financial sense.

Entrepreneurs should be wary of the minimum tax on unrealized gains, as it can significantly affect your decision-making when it comes to investments and company growth. To address this, consider adjusting your risk tolerance and investment strategy to be prepared for potentially higher tax liabilities.

Also, be mindful of changes in real estate and private equity strategies, as limitations on 1031 exchanges and adjustments to carried interest could affect your investment choices.

Last, think about your legacy and how you want to allocate your wealth. You may be motivated to give back and distribute your wealth in a way that aligns with your values, especially if the death tax is high, as this could lead to a more giving society and efficient resource allocation. Consider philanthropic efforts or creating a trust that reflects your desire to contribute positively to social systems.

Overall, stay informed, consult with specialists, and plan proactively to navigate through these potential tax reforms. Remember, structure and strategy are key in adapting to tax changes, preserving wealth, and ensuring the viability of your business.

Quotes by Alex Hormozi

"If you disincentivize the very people who are building the things that grow this economy, it makes the risk that a founder takes on virtually untenable"

– Alex Hormozi

"The private sector deploys capital 10 times more effectively than the government does"

– Alex Hormozi

"We want to be at the cutting edge of innovation, starting new companies etc., where do you think so many of these really exciting startups, software companies etc., get their initial funding from? Wealthy people"

– Alex Hormozi

"The private sector deploys capital 10 times more effectively than the government does"

– Alex Hormozi

"I'm a big fan of not caring, at the end of the day, about taxes on income"

– Alex Hormozi

Full Transcript

in this video i'm going to talk to you about biden's new proposed tax plan and what it means for us as entrepreneurs and i'll try and break down all different levels of entrepreneurs and how these things may affect you all right and so i uh made a little list uh of the of the main bullets that i think everyone should know about all right so i'm going to give you a little example of what it is what it means for us and then at the end what i'm going to do is i'm going to kind of summarize what i plan to do to kind of you know mitigate some of these things that are happening all right now that being said i've made other videos on taxes and taxation in general there are a handful of things here that very very deeply concern me and i'll express those when we get to them all right so let's rock and roll and if you don't know hi my name is oxford i own acquisition.com it's a portfolio of companies that does a hundred million dollars a year i make these videos because i think they're fun and cool and i think entrepreneurship is is awesome all right so lots of love let's see let's rock and roll so number one uh they're going to increase the top marginal tax rate to 39.6 percent after 2022 no big surprise there they're just gonna make the top bracket pay more okay number two they're gonna tax long-term capital gains and qualify dividends with taxable income over a million dollars at ordinary income tax rates okay so if you make over a million bucks a year all of your capital gains are now being taxed at again 40 like i just said which double blows but you know noted do we think that's going to affect uh how people invest not as much as i think you would think because if you have no alternative you just have to continue to play the game because you're not going to not invest the money because of the tax you're still going to invest and then you're just going to have to pay the taxes now what i do think it will do is it will get a lot of people to not realize their capital gains because they're going to hope for a change in in leadership which is exactly what i would definitely just not sell or we recently you know exited three of our companies this last year and it was because we anticipated a capital getting out because of this but among one of the reasons was that we anticipated a big increase in capital gains tax and so we thought it might be a good time to recognize some of our our equity all right so next one is they're going to treat transfers of appreciated property by gift at death as taxable dispositions okay so basically normally you could you could give such at death and it wasn't taxed in this case they will be now they're going to raise the corporate income tax to 28 you know which basically bumps it back from when when trump cut it there's going to be tax on stock buybacks which most you guys probably don't need to worry about impose a 20 minimum on income and this is probably the biggest one this is like i mean well it'll affect me it might not affect a lot of people but it's a 20 minimum tax on income okay including unrealized gains all right which to me is one of the most insane concepts of all time and i'm gonna break down this one particularly at the end of this little bulleted list because like there's a lot of consequences that i think for lack of a term are [ __ ] insane but i want to break it down so you can at least you know at your next cocktail party or whatever it is like talk intelligently about it okay next one is imposed minimum term and gift requirements so it's effective on all trusts created on or after the date basically they're just decreasing write-offs there i'll cover a couple more of the big ones carried interest so the private equity guys are now going to finally pay income tax i think that's probably a good thing overall uh they're going to cap deferral of gain from 1031 exchanges for the real estate guys uh to 500 000 per taxpayer which means like pretty much if you're a serious real estate investor you're gonna now not have that 1031 to like shelter all of your tax-free gains and if you don't know what 1031 is it's basically you sell a house you have the the profit that you have from the house if you put it into something that's similar in nature a similar type of building within a period of time like i think it's a year then you don't have to pay taxes you're basically just transferring it into another building and it continues and the reason they have those those uh tax treatments is because you know the government likes to incentivize people to continue to rebuild infrastructure and so real estate and buildings are a big part of that and so if they make it incentivizing for investors to uh to invest in those places then it means the country as a whole will continue to upkeep its real estate it will continue uh to just overall infrastructure continue gets built by private money right which is a good thing for everybody uh but they're eliminating that we're capping it for the vast majority of people who do the most of the volume they're gonna decrease uh deductions for easement transactions that's like a kind of a tax loophole around donating land and things like that and then limit the use of donor advice funds for private donations so basically their limit how much you're gonna you're gonna be able to write off off of uh donations all right there's a whole bunch of other stuff and they also uh limit the duration of generation skipping uh transfer tax exemptions so it's effective to all trusts which means that like for the whole concept of like i want to pass on my wealth to my to my generations what do the rockefellers do they're gonna they're gonna cut that severely if they pass this okay so this is this is the bill i think that there's there's there's obviously plenty more than what you can say in you know five minutes but i want to talk about one aspect in particular i'll i'll probably talk about too one of them's gonna be the income tax the second will be the uh the the corporate uh tax increase and the third will be uh the one that i'm most concerned about which is the uh unrealized capital gains tax all right so first one you know if you're going from 37 or i don't even know what it was 37 to 39.6 is it gonna make a big difference for you probably not if you're in that bracket but it is kind of like boiling a frog you know at a certain point there's only a hundred percent that someone can take but you know i've always made in my last video i talked about how like the real wealth is always built in growth of equities growth of the things that you're building right uh which is one of the things that they're gonna threaten which i'll get to last the second one is corporate tax right and so if you have a c corp and this is in the u.s you can leave the money that you have in the c corp and pay less tax as a result so at this point i think it's 23. don't quote me my account's not somewhere in there for c-corps and they're going to bump into 28. where this becomes a real issue is that if you take dividends from your company you pay income tax on the dividends like regular income tax so you're going to pay 28 and then 40. so all of a sudden this starts to like not make as much sense now the c corp structure makes the most sense if you plan on continuing to redeploy capital within the business all right so if you are playing the game of i want to increase the value of the corporation that i own and i'm going to so it's more efficient for me to have the corporation pay the 28 keep it and retained earnings and then redeploy it through m a capital expenses investing in you know infrastructure things like that they're going to increase the value of the business now the vast majority of the time especially if you're a small business you don't really have anything besides mergers and acquisitions and again i said small business so this might not apply for a lot of people but besides m a there's not a lot of stuff that you're going to replay that money for and which is why i think llcs and whatnot work for most small businesses better now once you get a little bit more sophisticated i think c corps can make more sense but you have to do a cost analysis on both in terms of how you plan on redeploying the capital so that you can in most accounting firms will be able to do a side-by-side comparison for you so you can see what your net tax implications are now i'm a big fan of not caring at the end of the day because we're gonna die about about taxes uh on income but if you're going to get taxed you can still be smart about it and you know just do the normal work i wouldn't i wouldn't uh you know encourage you to spend a tremendous amount of time wasting on this stuff rather than building your business because that's we're going to build the most of your wealth now let's get the last one and then alex will make two recommendations that i think are going to be highly controversial and unpopular but i think would be way more beneficial so the unrealized capital gains so this is kind of complicated the way they set it up all right and a lot of people are reheating and hawing about how this works but let's just say that your net worth is 100 million dollars okay now a lot of people might be tuning i'd be like wow if i'm out 100 million dollars like i won't care and you might but you might not and i'll tell you why it's like right now the reason you get to 100 million is because you believe in the american dream and you believe in the american dream because you believe that opportunity is endless and what happens is and this is why i'm very afraid of this particular tax is that it makes it much more difficult to attain and so what it will essentially do is is massively massively massively affect how much people can basically build their net worth too and i would more or less be okay with that from a from a cognitive you know from a from a logical basis excuse me if the capital were being redeployed through a an efficient system but the private sector deploys capital 10 times more effectively than the government does and so you're basically taking money out of people's hands who are very good at deploying capital and putting it into people's hands who are very bad at deploying capital people who work for the government don't normally have the best capital deployment skills uh compared to people who do this for a living and so that's like kind of like a systemic concern that i have the other one is that i think it will kill innovation because i mean i think this would be a kiss of death for the u.s economy and be really honest with you because we want to be at the cutting edge of innovation starting new companies etc where do you think so many of these you know really exciting you know startups software companies etc get their initial funding from wealthy people and if wealthy people no longer are incentivized to do that or massively disincentivized to do that then they just won't do it or they'll invest elsewhere on top of that u.s as a whole will be saving less money while all of our foreign competitors will be saving more money and will have the money going to people who are better at allocating capital than their governments and so i think it's a really really really really bad move just from an economic standpoint now mind you and i just want to be really clear i've only voted one time in my entire life and i regretted it because it was a waste of time so just i say this because i i don't think that my vote matters and everyone's like if everyone thought that way it's like don't worry no one not everyone thinks that way so it doesn't matter i'm not gonna like somehow make one youtube video and everyone's gonna suddenly stop voting because what happens is if fewer people started voting then the votes would matter more and more people start voting again right so it's a balancing act anyways here's how the unrealized capital gains tax will work this is me broad brushstrokes okay the the armchair uh people who read every single word of the tax proposal you're awesome i love you and you know by all means put all of the all of the the corrections in the comments uh but this is the general gist okay so let's say you have a 200 million dollar net worth and the 200 million dollar net worth is based on a a uh a 10x multiple of a company that you own that does 20 million dollars a year in ebitda or earnings all right i'm trying to keep this simple as hell okay so you have a 10x multiple on 20 which gives you 200 million dollars in value now how they're going to to calculate this i haven't even read into because i actually haven't been able to find it i googled all over i can find it but let's just say that that's how it's being calculated okay and if someone in the comments does know how it's being calculated post the formula i'm really curious so you got 20 million that's that's coming in uh as ebitda for the company that you own 100 of just for math's sake and that's worth 200 million now let's say that next year you grow the thing to 25 million even okay and with a 10x valuation that means that your company goes to from 200 to 250 million okay in value assuming you took all of the profit of your company as a dividend which is not likely but let's just assume again to make this simple it means that you would make 25 million dollars in income okay that's category one and then you would have taken your company from 200 to 250 million so you've got 50 million here and 25 million here so that was the net increase in your like net worth ish ish okay pre-tax ish they want everybody to pay 20 on unrealized capital gains and so that extra 50 million 20 of that would be 10 million dollars okay so that's 10 right to the side and then you've got your normal income tax of 40 on your 25 all right which is going to be another 10. okay which means keeping keeping math keeping math here if you paid all your taxes up front then you would pay 25 million sorry 20 million of your 25 million in taxes 20 out of 25 million in taxes it's an 80 tax rate that's really aggressive now that's assuming that you don't have some sort of tech company that doesn't make any profit because if you did have that then i don't even know what their plan is for that situation i think you'd have to sell stock of your own company to pay the tax on the increase and somehow get like it it would be or you'd have to take loans against your equity to pay the taxes it's really shitty the thing that they're trying to do to soften the blow here all right because i mean think about it literally be like overnight 80 tax rates and that's that's with that example that i gave right it could be it could be that's it with a really high cash flow company if you don't have a high cash flow company that's valued for other reasons it would basically just drain you like you just drain you entirely from all your reserves you'd have to go into debt to continue to own your company or you'd have to own less of your company to continue to run your company so you'd literally be disincentivizing the founders and innovators from continuing to grow their company because if they grew it they get taxed more before they can pay for it that being said the little special caveat that they're trying to do to make it softer is that it's it can be spread over nine years all right so that 10 million dollars could be spread over nine years so it'd be like 1.1 million or whatever on top of your normal income tax right but the thing is is that it will stack up right so it's like it's 1.1 so i might pay my normal you know 10 million on my 25 that i that i paid in income tax and then i'd have 1.1 that i'd start paying towards the 10 million that i owe on the 50 million dollars the thing is is that it sounds it sounds like okay that's not that's not as bad it's just because no one can think in time right because you just fast forward 10 years and then you're going to be paying that it just they're just they're just slowly bullying the frog to get to the point where where it stacks up on top itself because next year you're going to owe 1.1 and another probably more than that because if the company grew again you'd have another you know tax bill you'd have to pay on top of that and so hopefully you're seeing it's like mount it's like mountains of debt basically in tax that you're gonna have to start paying and so nine years from now that's when you're you're you're getting smashed right because it's going to take nine years for these payment plans to stack now obviously that's one assuming that they pass it to that they don't repeal it i think the likelihood that it passes is low but i will tell you this i think it is one of the scariest tax bills i've ever seen and it's because if you disincentivize the very people who are building the things that grow this economy it makes the risk that a founder takes on virtually untenable it's like when you start a company you risk failure and you have the the odds are stacked against you that you will fail like it's very likely that you're going to fail and in the in the off chance that you actually succeed they will unless you just have a very normal boring cash flow business which many businesses are not that way that have tremendous value they will basically just bankrupt you and la and stack so much tax debt on you for things that you have not realized yet and here's where it gets worse what if you do that you pay taxes on capital gains that are unrealized and then the company goes under which is also very common you basically just paid taxes to the government on stuff you never got ever and those taxes might actually be the thing that destroy the business because you got saddled with that you could barely pay your own expenses so the example i gave was a generous one because a lot of times you're not going to have you know 25 million dollars a year that's coming in let's say you have i'll give you a different example to really drive this home let's say you had an exit and you have a hundred million dollars okay let's just say that that's your your current net worth and you're probably pretty good at making money or allocating capital because you have that money right and so let's say you get 15 on that your net worth goes up by 15 million and let's say that because you had your you know exit you know you only make two million bucks doing consulting stuff whatever so you make two million dollars and you get taxed 40 so that's 800 000 but then you make 15 million dollars in increased appreciation on your assets so the 20 minimum tax there would be three million dollars on the 15. that's more than you made in total and people like well it's gonna spread over nine years it's like yeah but then next year you're also gonna have to pay it and then the night you're after that so like it's going to stack up and people just can't [ __ ] do math you have three million dollars in taxes and you only made two million and you still have the 800 so you have 1.2 million left and you still owe another three so you're going to have to come up with 1.8 million dollars every year just because you happen to own stuff and have a successful exit and so then you start bleeding your 100 million that you risked everything to get in order to pay off tax for gains you haven't realized so you have to sell stuff just you basically the government will just force you to sell your belongings or they put you in prison so i think it's um i think it is it is one of the scariest things i've ever seen i think it destroys the american dream i think it is against capitalism i think that the government is a terrible allocator of capital in general and they are literally one-tenth as efficient as the private sector is and so we're just going to take money out of the hands of the people who are most effective with it but that being said i understand i understand the the inequality that exists at the top the difficulty that i have is the psychology around it which is it's just like every mlm every mlm in the world you know they show that they show the number one you know person and because of survivorship bias people think that's going to be me stats would show that it's probably not going to be but just the hope just that the idea that you could someday get there is what inspires the vast majority of entrepreneurs i think i mean at least me and i think destroying that incentive and destroying that vision of what what could happen would be a really big detriment i don't have the best solution i did say i have a couple of ideas and so these are alex's very unpopular ideas around taxation i think that and like people are gonna call me crazy for this but here's two very radical ideas number one is uh decrease income tax dramatically to zero percent and then have an enormous capital gains tax and the reason for that is because most people who are poor make money off of income right most people who are wealthy make money off of their invested investments and so that would be a i think more balanced way of helping you know then it would still help all of the basically if you're working you should get you'll be able to keep all the stuff that your hands are making for you right and i feel like that would be a really interesting balanced approach to the process right because you're basically limiting how much people can make passively from their money and forcing more people to work so that was that's that's an idea i'm sure there's plenty of holes there always are but that was just one i was like huh that would be interesting a different idea that i have is because most of you who know me know that i'm not a huge fan of the concept of legacy because you know you multiply out your generations 5 000 years they won't know who you are just like you don't know the people who you came from um and so the idea of legacy is kind of a myth when you expand it over a long enough time horizon and because i think that money ruins people when you have not earned it the alternative would be to have basically like 100 death tax decrease the taxes dramatically on income and capital gains throughout the entire life that someone has but basically eliminate the transfers of wealth and what that does is i think it will create a world where people become significantly more giving as they get older anyways because they know they can't take it with them both in the like we know we can't take it with us but for some reason we have this deluded idea that we're going to be able to pass it on to people and so i think it would force the people who know that the government is going to tax them i don't think that they would want all that money to go away and so what will happen is that in the in the end of their lives they will start giving it all away and then privately allocating the money where they are more efficient than the government is and actually have a massive improvement in the well-being of society as a whole and so think about that is like these these huge wealths get accumulated and then they just can't they can't just pass the generation to keep accumulating and accumulating it instead it just gets boom back and then it helps everybody else out and so that is that is actually my best is in my opinion my best idea that i have uh to fix the tax system which would be massively decrease income tax massively decrease capital capital gains because i would encourage investment it would encourage people to work it would mass it would increase the amount of innovation it would increase foreign money coming to the company into the united states in the country the death tax the fact that you can't transfer the wealth to you know people without you could do 100 you get 90 whatever it is right some big percentage and i'm sure you could write a little bit of you know clauses around like spouses directly or something like that but basically not down generations i think that would be a really cool way to incentivize everybody who accumulates a lot of wealth to end up giving it away and the key part that i think makes it interesting is that because they will give it away rather than getting it taxed they will privately allocate the money where it's more effectively spent than the government does and i think that overall would flood uh the us with pretty probably all the social systems that i would need um privately funded more efficiently and probably alternative educations and the things that the people who make the most money are passionate about and what's interesting here too is that the people who make lots and lots of money first generation is very very different second and third generation wealth they talk about all the time one you know one first generation builds a second duration uh maintains that their generation destroys it and the people who are builders most times i think is like 85 like don't quote me but i think it's like 85 of the the forbes list are self-made and so people talk about these billionaires like they're these terrible people but like they're they're one of us who just made it right and so giving those people typically i think start caring about everyone the wider up you go the higher up the the because you don't need to satisfy your needs anymore you're really just trying to help humanity at this point and so i think that you'd have the best most innovative people trying to make an impact on humanity rather than leaving the legacy to their very concentrated family anyways that's alex's two cents on on joe biden's plan welcome to mozzie nation if you're new most of the times i'll talk about business stuff this one was an exception if you enjoyed it let me know if you hated it also let me know keeping amazing i'll catch you guys next video bye