Business & Investment

Biden promised to tax the rich — but exactly how does he do that?Experts consider his options

If President Joe Biden’s campaign promised to tax the rich, we’re about to arrive at the main event.

The problem is exactly this Does he propose a tax increase? And what can he get from a Democratic-dominated parliament, a parliament where the president can’t vote “against”?

Biden may officially announce its plans starting April 28, according to commentators. So far, the White House hasn’t provided any details.But White House spokesman Jen Psaki confirmed Biden Discuss the plan In a speech scheduled for Congress next week.

Some details are beginning to permeate. Bloomberg News Report Thursday Biden said he would raise the capital gains tax on households earning at least $ 1 million to 39.6%, citing those familiar with the proposal. Coupled with the additional 3.8% tax associated with the Affordable Care Act, it is a potential 43.4% tax rate.

When asked about reports of possible increases in capital gains, Pusaki said he did not want to comment prior to Biden’s decision.

With an average of 30 Dow Jones Industrial Averages, all stock market benchmarks have begun to fall into the news

sliding 300 points..Dow Finished The S & P 500 fell about 322 points on trading days.

Nasdaq Composite Index, down about 38 points

I lost 132 points.

For Biden’s other plans to tax the wealthy, observers should consider Biden’s stance in running for president and make informed guesses about which tax provisions are being considered. Said it was possible. Over $ 400,000.

“Tea leaves” to read taxation

Experts also read the taxable “tea leaves” by looking at the people Biden tapped to serve in his administration.

They say that the highest income tax rate, the new rules for real estate, and the new tax treatment for high net worth investment income are all likely to be mixed.

They point out that some proposals can depict new terrain in tax law, but others may soon revoke the Trump-era tax law, which is set to expire at the end of 2025. Hmm.

“At this point, taxes aren’t going down anymore,” said David Kirk, a tax partner who heads Ernst & Young’s Private Tax Group. “They just get up from here. How is the problem?”

“At this point, taxes aren’t going down anymore. They’re just going up from here. How’s the problem?”

— David Kirk, a tax partner who leads Ernst & Young’s Private Tax Group

The answer is very important as the Biden administration is pushing policy agendas. This is also important because high-income households determine tax planning, investment portfolio strategies, and end-of-life issues.

Data on tax minimization strategies And Busy schedule of financial planners Show that the wealthy taxpayers weren’t waiting.

This shows some of the specific tax provisions that may be working, as well as those that are known and not yet known.

New maximum tax rate

Biden did not propose a wealth tax, but suggested a maximum marginal tax rate of 39.6%. That was where the 2017 Tax Reduction and Employment Act reduced the tax rate to 37% (and also reduced the tax rates on the other four brackets under the income ladder).

Kirk, a former lawyer at the Internal Revenue Service’s chief law firm, said the potential rate hike was a “relatively low outcome” for the administration.

Ed Mills, a Washington, DC policy analyst at Raymond James, agreed that potential rate hikes seem likely. “The political selling point is,’not necessarily raising those taxes, but returning them to Trump’s pre-tax state,” he said.

One habit is 2021 Top Rate Applies to individuals who earn at least $ 523,601 per year, or couples who earn $ 628,301 per year. So did Biden shuffle things and make $ 400,000 households fall below the highest rate instead of the second highest rate of 35%? “These are all political decisions,” Mills said.

Adjusting the maximum tax rate could generate $ 100 billion in new tax revenue, according to Evercore ISI’s Tuesday memo. Investment banking advisors call this change “likely.”

Inheritance tax revision

Tax cuts and employment laws have doubled the threshold at which a 40% federal estate tax applies. Previously it was $ 5.49 million per person ($ 10.98 million for couples), but this year it is $ 11.58 million per person ($ 23.16 million for couples). The numbers are an indicator of inflation. Similar to the marginal tax rate, under 2017 law, the inheritance tax exemption will expire after 2025.

But Biden may want to expedite the expiration date, and Kirk said he brought in people who were keenly aware of the workings of inheritance tax.

Lily Batchelder was appointed Assistant Secretary of Tax Policy for the Treasury, he said. (The White House officially sent her nomination to the Senate last week.)

Bachelder previously taught at New York University’s Faculty of Law.So she estimated that federal estate tax would rise to $ 16 billion last year, which is effective. The inheritance tax rate is about 2%.

“Political, it makes sense because the average working American doesn’t have the property to deposit with his children.”

— Professor Donald Williamson, Secretary-General of the Cogod Tax Policy Center at American University.About the possibility of revision of the Inheritance Tax Law

“Despite our vision of creation as a country of opportunity, the United States is ranked at the bottom or near the bottom of high-income countries in terms of economic equality and intergenerational liquidity. Our tax law. Plays an important role, “said Obama, an official of the Obama administration. I have written last year.

When the inheritance tax is revised, one question is where the tax exemption level is set and whether the tax rate stays at 40%.

Some inheritance tax changes are “completed transactions” in the eyes of Professor Donald Williamson, Secretary-General of the Cogod Tax Policy Center at American University. “Political, it makes sense because the average working American doesn’t have the property to deposit with his children,” he said.

“Basically eliminating step-ups requires small business owners to pay new taxes when their family’s business partners die and potentially forces them to sell their business. Probably. ”

— Courtney Titus Brooks, Senior Manager of Federal Relations, National Federation of Independent Business

About 4,100 inheritance tax returns will be submitted to those who died last year. projection From the Urban Institute & Brookings Institution Tax Policy Center. According to think tanks, about 1,900 people are subject to federal estate tax. Applying these numbers to the context, last year the number of deaths in the United States was 3.35 million. Centers for Disease Control and Prevention.

The increase in inheritance tax also means that “basically a step up” is at a loss, according to Williamson. Under this tax law, if an heir sells an inherited asset, the price increase and the associated capital gains tax will begin at the time of the inheritance, not when the asset is first acquired.

If the value of an asset, such as a long-term holding of a good company, continues to grow, it is a major shield against major capital gains tax obligations.

However, if a business is sold or inherited, it can affect capital gains. This is the front setting.

“Basically, to eliminate step-ups, small business owners have to pay new taxes when their family’s business partners die and sell their businesses just to pay the tax-related fees. You may be forced to do so, “said the federal government of the National Federation of Independent Businesses, an advocacy group for small and medium-sized enterprises.

Biden’s future proposals “may include” inheritance tax changes that could generate $ 500 billion, and “very likely” basic step-up changes, Evercore ISI said. I added a note.

New rules and rates for capital gains

Currently, the wealthiest taxpayers have capital gains rates starting at 20%. Although the price may be higher It depends on the assets you sell.

Candidate Biden said he would raise the capital gains rate for households earning at least $ 1 million to 39.6% so that investment income would be taxed just like regular income.

Income tax and inheritance tax are one thing, but changing capital gains rules can be a more difficult endeavor, Kirk said. First, he wondered, can Biden persuade lawmakers to counter the tax law of the first century? 1921 Revenue Law — Did it tax long-term capital gains at a lower preferential tax rate?

“If you choose to adjust your capital gains or eligible dividends, when will you enable them and how will you prevent market reaction?”

— Ed Mills, Policy Analyst, Raymond James, Washington

Biden also needs to think seriously about interest rate figures, Kirk said. Interest rates that are too high can discourage profits and thus actually lose government income.

Timing is another question. If a rich investor knows that the capital gains rate is low, it can trigger the sale of securities and other valuated assets. “If you choose to adjust your capital gains or eligible dividends, when will you enable them and how will you prevent market reaction?” Mills said.

According to an Evercore ISI note, Biden’s plans “probably include” this change, which, when combined with other capital gains changes, will generate $ 300- $ 400 billion in tax revenue. ..

State and local tax deductions

Tax cuts and employment laws have covered state and local tax deductions for $ 10,000. When a taxpayer itemized a deduction item, instead of receiving a standard deduction, there was previously no limit on depreciation.

Some House Democrats currently from high local tax states Promoting the Biden administration To remove the lid, they say the current situation is hurting middle-class families in high-cost areas.

If unlimited deductions return to the mix, it can have a super-upper class impact. According to the 2018 Tax Policy Center, 96% of tax savings from pulled back lids go up to 20% of households analysis..

According to Williamson, the story of abolishing the SALT cap is “sarcastic” in the current situation. “I think it’s frankly in the rich’s interest to lift the SALT restrictions.”

Last week, White House spokesman Jen Psaki said the administration would at least listen to lawmakers. Mr Mills didn’t expect Biden to start with abolition, but said it “needs debate and compromise.”

Stronger IRS budget

There are changes in the law, and then there is more money to enforce the tax laws already in the book.

The Biden administration wants an IRS budget of $ 13.2 billion this year. This is an increase of 10.4% over the previous year. Extra cash is sent to more executive staff to counter the decline in audit rates for businesses and high-income earners.

May be$ 1 trillion gap per year Between unpaid and paid taxes, IRS Commissioner Charles Rettig said this month.

If legislators hesitate to raise taxes, Mills said more budget cash for the IRS could provide an alternative route to more taxes.

“The more IRS enforcement is dialed up, the less tax increases we need to dial up. Rather than enforcing existing tax laws, raising taxes is the least reluctant way,” he added later. It was.

Biden promised to tax the rich — but exactly how does he do that?Experts consider his options Biden promised to tax the rich — but exactly how does he do that?Experts consider his options

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