This is how the Democrats want to raise taxes on the rich

Drew Angerer | Getty Images News | fake images

Democrats may soon raise taxes on the rich as lawmakers shift to priorities beyond pandemic relief.

A change in the way Uncle Sam taxes the wealth, capital gains and property of the super-rich may be on the table, according to tax experts.

The White House and Congressional Democrats have sought higher taxes to raise trillions of dollars in additional revenue to, for example, improve the country’s infrastructure and combat climate change.

President Joe Biden and his advisers are considering up to $ 3 trillion in new spending for such efforts, the New York Times reported Monday.

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There is a chance that there will be no radical changes to the tax code, especially if they require Republican endorsement. But the wealthiest Americans can expect at least some kind of tax increase, experts said.

“The question we’re really grappling with right now is not whether tax rates will go up, but when and what taxes.” said Alison Hutchinson, managing director and senior wealth planner at Brown Brother Harriman in New York.

Capital gains taxes

In essence, Biden’s tax plan focuses on raising taxes for Americans who earn more than $ 400,000 (it is not yet clear whether it is for families or per individual). The plan would increase the top income tax rate and tax more of your income for Social Security, for example.

And Biden would raise taxes more for millionaires and billionaires.

For example, you want to tax long-term capital gains at the same rate as wages for households making more than $ 1 million a year.

Wealthy Americans currently pay a 37% tax on wages and a lower 20% tax on investment earnings (plus a 3.8% surcharge).

Biden’s tax plan would increase the capital gains tax for millionaires to 39.6%, the same rate at which the president would tax earned income for people with high incomes.

Treasury Secretary Janet Yellen told the Senate in January that this change in capital gains taxes was a long-term goal of the Biden administration.

“We recognize that our tax system cannot lean toward corporate interests and the wealthy, while those that rely primarily on wages bear an uneven burden,” he said in written testimony during his confirmation hearing.

However, the capital gains policy could extend beyond the consistently wealthy.

That could happen if a business owner making $ 75,000 a year sells his business for more than $ 1 million, for example, said Robert Keebler, a tax advisor and certified public accountant in Green Bay, Wisconsin.

“You could argue that’s fair to a Wall Street mogul who makes a lot of money every year, but it might not seem so fair to a guy who sells his business for a year,” Keebler said.

Inheritance tax rules

Biden has also proposed changing the rules on wealth transfers, such as with the inheritance and gift tax.

Current law allows heirs to receive an asset, such as a stock or home, at its current market rate (rather than the original owner’s cost) courtesy of an “increase in basis” upon death.

That allows the heir to sell the asset without paying appreciation taxes for the life of the owner.

In the election campaign, Biden said he would eliminate the base of the step-up.

If Congress can’t agree on anything, that’s what would happen anyway.

Bruce steiner

attorney for Kleinberg, Kaplan, Wolff & Cohen

It would also reduce the amount people can transfer without paying estate and gift taxes to $ 3.5 million in bequests at death and $ 1 million in lifetime gifts. There is also the possibility that Biden will raise the current 40% tax rate, said Bruce Steiner, an attorney for Kleinberg, Kaplan, Wolff & Cohen.

The Tax Cuts and Jobs Act raised the tax-free threshold to $ 11.7 million for individuals in 2017. That threshold will revert to pre-TCJA limits in 2026, due to sunset provisions built into the law.

That means more properties (those over $ 5.5 million for individuals) will automatically be subject to wealth transfer taxes within a few years.

“If Congress can’t agree on anything, that’s what would happen anyway,” Steiner said.

Health tax

Sen. Elizabeth Warren, a Democrat from Massachusetts, holds a press conference to announce legislation that would tax the net worth of America’s richest people on March 1, 2021, in Washington.

Chip Somodevilla | Getty Images News | fake images

Biden has not proposed an annual tax on total wealth. Yet politics is on the wish list of some more liberal members of the House and Senate.

Senator Elizabeth Warren, Democrat of Massachusetts; Senator Bernie Sanders, I-Vt .; and eight other Democrats proposed the Ultra Millionaire Tax Act in early March.

The bill would impose a 2% estate tax on the net worth of households and trusts ranging from $ 50 million to $ 1 billion. The tax would be 3% for more than $ 1 billion.

About 100,000 Americans would be subject to a wealth tax in 2023, according to Emmanuel Saez and Gabriel Zucman, economists at the University of California at Berkeley. The policy would raise at least $ 3 trillion over a decade, they found.

“When people universally look at Warren’s wealth tax and say there is little likelihood, I agree that Congress will not pass the first cut,” Hutchinson said. “But I think tax planners should focus on these kinds of proposals, because something like this could very well come up.”


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