Do not let lies destroy Biden’s tax plan – ITEP

Several former Democratically Members from congress joined a campaign to misrepresent President Biden’s proposal to close a huge tax loophole for wealthy people with capital gains. This proposed reform is the cornerstone of the President’s tax plan. If the legislature falls for the lies, Biden’s plan will collapse. Instead, they should do what is both Popular and fair: implement the plan intact so that millionaires and billionaires no longer escape federal income tax.

President Biden proposes to end the “tiered basic rule” that allows unrealized capital gains, which are the main income of some very wealthy people, to escape income tax. The proposal does not apply to assets that are family businesses and family businesses as long as they remain family owned and operated. The former lawmakers who spoke out against the opposition are spreading misinformation by pretending that this exception does not exist.

A capital gain is the increase in the value of an asset. A “realized” capital gain is the gain on the sale of an asset.

For example, if you bought an asset for $ 5 million last year and it is worth $ 8 million this year, you have a capital gain of $ 3 million. Under our current tax regime, the $ 3 million capital gain is “realized” and counted as income for tax purposes only when you sell the asset. Your “base” is the $ 5 million you paid for the asset. You sell it and get $ 8 million in return and subtract your base from that $ 8 million to calculate your $ 3 million capital gain.

Let’s say you don’t sell the asset this year. In this case, you still have a $ 3 million capital gain, but the capital gain is “unrealized”. Tax law does not count capital gains as income until they are realized, meaning you sell the asset. But it’s income in the sense that you can spend $ 3 million as if you were making $ 3 million on a job.

Let’s say you never sell the asset, but instead pass it on to your heirs. In this case, our current tax laws offer the biggest breakthrough of all in freeing those unrealized capital gains forever.

The mechanism that does this is the “tiered base rule”. If the asset when buying 5 million sale on their tax form.

Biden suggests ending this tax loophole for the rich in large part by including unrealized capital gains in taxable income when the owner of an asset dies and passes it on to their heirs. Under Biden’s plan, the first $ 1 million in unrealized capital gains would remain exempt, and the exemption would be $ 2 million on assets passed away by a couple.

The tax on unrealized profits in “family businesses and businesses would only become due when the stake in the business is sold or the business is no longer family-owned and run”. (See pages 62-64 of the Statement by the Ministry of Finance the President’s revenue proposal.) To be clear, if someone inherits a farm and continues to run it, he will not pay the tax. If they sell, Biden’s plan gives them 15 years to pay the tax.

Family businesses are obviously not the aim of his reform. The target is people like Elon Musk whose fortunes have grown by $ 14 billion over five years, almost exclusively in the form of untaxed, unrealized capital gains. If Musk simply keeps his fortune until his death and passes it on to his heirs, his billions of unrealized gains will forever escape income tax thanks to the increased tax base.

Most of us work in a job, earn an income from that job, and pay income tax on that income every year. That’s not how it works for someone like Elon Musk. He makes huge capital gains and simply decides every year how much income he will make. He does not realize most of this income every year and therefore does not pay income tax on it. Making sure Musk’s income is taxed at least once is the least we can do to keep our tax laws fair, and that’s what Biden suggests.

Establishing this rule is the linchpin of a fair tax regime. Without this reform, a separate proposal from Biden to deny millionaires the special, lower tax rates on realized capital gains will be far less effective, as millionaires will avoid the tax hike by holding more assets until they die. This, in turn, would make Biden’s proposal to restore the top tax rate on “ordinary” income less effective, as millionaires could continue to disguise their normal income as capital gains, which, when realized, are taxed or not taxed at lower rates. would be taxed whenever the tiered base gap is used.

This is a dire prospect and it is no wonder that the opponents of Biden’s plan fail to mention it. It’s much easier to just lie and say that Biden’s proposal will harm family businesses.