The White House wants to stop a tax evasion used by the super-rich

M.OST American The government wants to impose higher taxes on the very rich. Every few months or so, democratic lawmakers unveil plans to do so, only to stumble over their legislation. It’s not just the rich who can afford the powerful lobbyists. The nature of their fate makes them an elusive target for the tax authorities. A new proposal from the Biden administration could offer a partial solution, if it transcends political and legal hurdles.

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The idea behind President Joe Biden’s new budget proposal on March 28 is that Americans worth more than 100 100 million should pay a 20% minimum tax on all their income, which includes, arguably, an appreciation of their investment. If a very rich American earns $ 10 million in his stock portfolio in a year, he will have to pay দায় 2 million in liabilities.

The goal is to close a gap. Wealthy Americans must pay at least 20% capital gains tax when selling assets. But when assets are inherited, the value at the time of transfer creates a new basis for calculating capital gains. This way the super-rich can reduce their tax bills: they owe nothing on unsold assets while they are alive, and their heirs then benefit from a “step-up basis” for capital gains. Economists in the Biden administration calculate that 400 wealthy American families pay an average federal income tax rate of only 8%, much lower than the average rate paid by the majority of the middle class.

An easy way to close this gap is to recognize all capital gains on inheritance. In fact, it was Mr. Biden’s choice when it came to legislation last year. But opponents have branded it a “death tax” that would bankrupt family farms. Although the charge was unfair প্রায় almost all farms were below the tax threshold-Democrats dropped the idea.

The Biden administration has called the new proposal a “billionaire minimum income tax.” Steve Rosenthal of the Tax Policy Center, a think-tank, called it an innovative rebranding of step-up basis ideas. “It will work like a pre-payment,” he said. Taxes due at the time of death will be deducted by those who have paid in advance.

The White House thinks the new tax will bring in $ 360 billion over the next decade, making it impressive for a tariff that hits the richest 0.01% of households. However, it reflects a loss for the state on the basis of decades of gains, like Jeff Bezos and Elon Musk. In order to pay taxes, they may have to sell shares in their firm, potentially rebuilding their ownership structure. The government will handle the push by breaking the payments in installments (first for nine years and then for five years). Once established, the revenue will be thin. “The 60 360 billion estimate makes it more promising in the long run than it really is,” said Kyle Pomerleu, a think-tank at the American Enterprise Institute.

There are two immediate barriers. The political question is whether Joe Manchin and Kirsten Cinema, two moderate Democratic senators, support the idea, as Biden did in the White House. They have opposed the previous tax hike for various reasons. Then there is the court. The constitution limits the federal government to income, not resources. The White House will argue that capital gains are a form of income, but its proposal will face legal challenges.

Even if Mr. Biden succeeds in making the tax law, another concern will arise. Tariffs will be complex, especially for assets that do not trade in the public market. Lawyers will create new structures to shelter resources. “We’re sharpening their pencils as we talk,” said Joel Slimrod, an economist at the University of Michigan. 3

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This article was published in the Finance and Economics section of the print edition under the headline “Our portion before death”

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