This is how Democrats want to increase taxes on the rich

Democrats may soon be raising taxes on the wealthy as lawmakers focus on priorities beyond pandemic alleviation.

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

The White House and Congressional Democrats have honored higher taxes to raise trillions of dollars in additional revenue, such as to improve the country’s infrastructure and fight climate change.

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

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There’s a chance that sweeping tax law changes won’t happen, especially if they need Republican backing. But the richest Americans can at least expect some sort of tax hike, experts said.

“The question we are really dealing with right now is not whether tax rates will increase, but when and which taxes?” said Alison Hutchinson, director and senior estate planner at Brown Brother Harriman in New York.

At its core, Biden’s tax plan focuses on increasing taxes for Americans who earn more than $ 400,000 (it’s still unclear whether that’s for families or per person). For example, the plan would raise the highest income tax rate and tax more of their income on Social Security.

And Biden would increase tariffs on millionaires and billionaires more.

For example, he wants to tax long-term capital gains at the same rate as wages for households earning more than $ 1 million per year.

Wealthy Americans currently pay a rate of 37% on wages and a lower rate of 20% on investment income (plus a supplement of 3.8%).

The Biden tax plan would increase the capital gains tax for millionaires to 39.6% – the same rate at which the president would tax job income for high earners.

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

“We recognize that our tax system cannot be tilted towards corporate interests and the rich, while those primarily supported by wages bear an unequal burden,” she said in a written statement at her hearing.

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

That could happen if a business owner who makes $ 75,000 a year sells his business for more than $ 1 million, said Robert Keebler, a tax adviser and licensed accountant in Green Bay, Wisconsin.

“You could say it’s fair to a Wall Street tycoon who makes a lot of money every year, but it might not seem fair to someone selling their business for a year,” Keebler said.

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

Under current law, heirs can receive an asset, such as a stock or home, at current market interest rates (rather than the owner’s original cost) thanks to an “increase in base” on death.

This allows the heir to sell the property without paying tax on the increase in value over the owner’s life.

On the campaign trail, Biden said he would eliminate the step-by-step base.

He would also reduce the amount individuals can transfer without paying inheritance and gift taxes to $ 3.5 million in death probate and $ 1 million in lifetime gifts. There’s also a chance that Biden will raise the tax rate from the current 40%, said Bruce Steiner, an attorney at 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 return to pre-TCJA limits in 2026, due to sunset provisions baked into the law.

That means more estates (those in excess of about $ 5.5 million for individuals) will automatically be subject to capital transfer tax in a few years.

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

Biden has not proposed an annual tax on total assets. However, the policy is on the wish list of some more liberal members of the House of Representatives and the Senate.

Sen. Elizabeth Warren, D-Mass .; Sen. Bernie Sanders, I-Vt .; and eight other Democrats proposed the Ultra-Millionaire Tax Act in early March.

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

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

“When people universally pan Warren’s wealth tax and say the odds are slim, I agree that the first cut will not be approved by Congress,” Hutchinson said. “But I think tax planners should focus on proposals like this because something like that could very well come through.”