The Biden administration has reportedly dropped a key tax hike from the “economic plan” President Joe Biden will unveil in his Wednesday evening address to a joint session of Congress, and it’s likely to leave progressives and far-left Democrats concerned that the president is shying away from his campaign promise to “tax the rich” to pay for “infrastructure” investments.
Biden is expected to present a trillion-dollar “American Families Plan” on Wednesday as well as a multi-trillion-dollar “American Jobs Plan,” which the White House has termed an “infrastructure” investment bill. The “Families” plan is expected to include everything from universal pre-K instruction to two free years of community college education for qualifying students, per Fox News.
President Biden is also expected to present a new slate of tax increases designed to pay for the massive expansion in federal programs, including a tax hike on most Americans making more than $400,000 per year and a capital gains tax increase on individuals earning more than $1 million.
One element that will be noticeably absent from Biden’s plan: an estate tax hike. Although the White House has suggested Biden would raise the estate tax — and then-presidential candidate Joe Biden campaigned on the issue — sources close to the president’s core economic team told Bloomberg News that the administration has dropped the idea, at least for now.
“President Joe Biden and his economic team are planning to forgo an expansion of the estate tax in the administration’s coming individual tax-hike proposals, according to people briefed on the plan,” the outlet reported Wednesday.
“Biden during the 2020 campaign pledged to increase the estate tax, along with raising rates on capital gains and corporate income, as part of an effort to force companies and the wealthy to pay a greater share of federal revenue,” Bloomberg continued. “But the estate tax boost won’t be part of the funding measures in the ‘American Families Plan’ the president will unveil Wednesday, the people said, asking not to be named as the plan isn’t yet public.”
“The exclusion of a hike in the estate tax is noteworthy to both progressive groups and liberal economists because Biden had made taxing the rich such a central part of his campaign and presidency — and advocates view an estate-tax hike as one way to dismantle wealth passed along within families that are often not subject to taxation,” the outlet added.
Biden’s team is, instead, looking at a hike in the “step-up basis,” which, according to Bloomberg, “allows heirs to use the market value of assets at the time of inheritance rather than the actual purchase price as the cost basis for capital gains when the holdings are sold.”
That will hit wealthy Americans, but, according to experts, could also have an impact on middle-class Americans who inherit property that has seen any dramatic increase in value, per financial services outlet InsideSources.
Here’s how that works. Say you’re a 60-year-old almost-retiree whose 90-year-old parent just passed away. You are bequeathed their Florida home acquired in 1980 for $100,000. Its value is now $500,000. Hopefully, it won’t be complicated by a reverse mortgage or isn’t burdened by other forms of leveraged debt. You sell it for $500,000. Thanks to “stepped-up basis,” you should owe no federal capital gains tax on the sale.
But what happens if all this happens after Democrats eliminate this so-called “loophole?” You’ll owe capital gains taxes on the gain in value since the property was purchased 41 years ago, most of which is probably inflation. That’s a likely 20 percent tax hit on the “gain” of $400,000 – some $80,000 to Uncle Sam. For people with incomes over $1 million, Biden may raise Capital Gains taxes to match the highest personal income tax rate of 39.5 percent.
The changes to capital gains taxes are not set in stone, either, and Biden will likely have a difficult time convincing more moderate Democrats — who currently hold the key to passing any tax measure through the Senate — that they are necessary.