Here’s how Democrats want to raise taxes on the rich

House Speaker Nancy Pelosi, a California Democrat, wears protective masks while speaking at an event in the Rose Garden of the White House in Washington, DC, on Friday, March 12, 2021.

Jim Lo Scalzo | Bloomberg | Getty Images

Democrats could soon raise taxes on the rich as lawmakers turn to priorities outside the Covid pandemic.

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

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

President Joe Biden and his advisers consider up to $ 3 billion in new spending on such efforts, The New York Times report Monday.

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There is a chance that comprehensive changes to the tax code may not take place, especially not if it requires Republican support. But the richest Americans can expect at least some sort of tax increase, experts said.

“The question we are working on now is not whether tax rates are going to rise, but when and what taxes?” said Alison Hutchinson, a managing director and senior wealth planner at Brown Brother Harriman in New York.

Capital gains tax

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

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

Estate Tax Rules

Biden also suggested changing rules around wealth transfers, such as with the estate and gift tax.

Under current law, heirs can receive an asset such as a share or home at the current market rate (instead of the cost of the original owner) with the consent of an “upside base” at death.

This allows the heir to sell the asset without paying tax on the valuation during the owner’s life.

On the campaign trail, Biden said he would eliminate the intensification in the base.

If Congress can agree on nothing, it will happen anyway.

Bruce Steiner

Attorney at Kleinberg, Kaplan, Wolff & Cohen

He will also reduce the amount individuals can transfer without paying estate and gift taxes to $ 3.5 million in bequests on death and $ 1 million in lifetime gifts. There is also a chance that Biden could increase the tax rate from the current 40% 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. The threshold will return to pre-TCJA caps in 2026, due to the provisions of the Sunset in the law.

This means that more estates (more than $ 5.5 million for individuals) are automatically subject to tax transfers within a few years.

“If Congress can agree on anything, it will happen anyway,” Steiner said.

Wealth tax

Senator Elizabeth Warren, D-Mass., Holds a news conference announcing legislation that would tax the net worth of America’s richest individuals on March 1, 2021 in Washington.

Chip Somodevilla | Getty Images News | Getty Images

Biden did not propose an annual tax on total wealth. However, the policy is on the wish list of some more liberal members of the House and Senate.

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

The account would levy 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 anything over $ 1 billion.

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

“If people generally accept the Warren Wealth Tax and say there is a low probability, I agree that the first cut will not be signed by Congress,” Hutchinson said. “But I think tax planners need to focus on these types of proposals, because something like that could quite possibly go through.”

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