Democrats have been talking about raising taxes on the elite for some time. Recently, lawmakers are looking to work on other problems and Covid Relief, which means pivoting to taxes. How to handle capital gains, wealth, and estate taxes may be one of those topics up for discussion.
Higher taxes will allow for the ability to deal with climate change and improve the country’s infrastructure. The hope is to raise trillions of dollars in revenue because Biden and his advisors are looking to spend more than three trillion dollars on endeavors.
There is the possibility that the tax code changes will not come to pass, and if it requires Republican backing, it is less likely. The wealthiest members of the population can expect a tax hike of some kind, by all expert accounts.
Since it seems to be common knowledge that tax rates will rise, the questions become which ones and when? This information comes from New York’s Brown Brother Harriman’s senior wealth planner Alison Hutchinson.
The tax plan that Biden is looking to roll out centers around raising taxes for Americans who bring in more than $400,000 a year. It is not clear if this is for individuals or families. This plan would raise the top income tax bracket and allow for more income to be taxed for social security to balance the inflation rate. The tax would be aimed more at millionaires and billionaires. The tax will hit long-term capital gains as a wage if the household makes more than $1 million yearly.
The wealthy are currently paying 37% of their income, with investment earnings being taxed at a lower rate of 20%. There is a 3.8% surtax as well. With the new plan, there would be a 39.6% tax on capital gains for millionaires, which is the same for high-earning individuals.
Janet Yellen, Treasury Secretary, has told the Senate in January that this change is a long-term goal and hopes it will balance out the divisions between wealthy corporate elites and those who are mainly wage earners. However, as it stands, those who make $75,000 yearly can be taxed when they sell a million-dollar company, said one tax advisor. This is not the balance they are working for.
There is some talk that there will be new rules around the gift and estate tax. The current law allows heirs to get either a home or stock at the current market rate as an at death ‘step-up.’ This allows the heir to sell without appreciation tax. Biden has said he would cancel the step-up basis.
There will be limits on estate and gift transfers, such as $1 million lifetime gifts and $3.5 million bequeathed at death. If Congress can’t agree, the current Tax Cuts and Jobs Act will revert to the precaps in 2026 because of the sunset provisions. This will mean more estate taxes for individuals making more than $5.5 million.
Though there isn’t a current proposal on an annual wealth tax, it is a bit of a wish list. Sanders and Warren, along with eight more Democrats, proposed a Tax Act for the Ultra-Millionaires in March. There is a 2% wealth tax on trusts and households with $50 million to $1 billion and 3% for those over $1 billion. This would make about 100,000 Americans subject to the wealth tax in 2023. This has the potential to raise more than $3 trillion in a decade.
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