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New Tax Increase Would Act as a Double Death Tax
Townhall.com ^ | May 12, 2021 | Daniel Savickas

Posted on 05/12/2021 6:55:53 AM PDT by Kaslin

Death has sadly been on the minds of many Americans this past year. Hundreds of thousands have been lost in the U.S. alone to coronavirus, including many more across the globe. This time has been unimaginably difficult for so many who have lost loved ones. Unfortunately, as the pandemic winds down, the Biden administration is proposing a tax hike that would make sure Americans are taxed twice in the event of a death in the family. So, while people may only die once, their family or loved ones would have to pay twice.

Given the way this tax hike is structured, the government has ensured not even death provides an adequate escape. The proposal would eliminate what’s known as the “stepped up basis rule.” This rule shifts the base valuation of an asset that is inherited after the passing of a loved one. For example, if someone inherits a home that was worth $200,000 at initial purchase, but is worth $1 million at the time of the owner’s death, under the step up rule the new owner’s gains on the property would be based on the $1 million valuation.

In such a scenario – without the step up rule – the inheritor would be subject to the 40 percent estate tax and would then have to pay the 39.6 tax – up from the current 20 percent – on an $800,000 “capital gain.” This works out to a roughly 64 percent tax before anything else happens. Losing a loved one is difficult enough without worrying about the government potentially decimating their estate and leaving the family to worry about the rest. This proposal would act as a second, more insidious death tax.

To pay the tax on that “$1 million” house would most certainly involve the selling of that house in order to pay the tax. Therefore, nothing is actually inherited. Now, imagine a small business that was supposed to be handed down to the next generation and all of the assets were to be sold to pay the tax. That business would be gone.

This is even more outrageous when considering the fact that the assets being inherited are the product of after-tax income. Not only is it taxed every year through the basic income tax, but will be taxed again through the estate tax, and again through this modified capital gains tax. Far from being compassionate toward the grieving, this proposal makes sure their bereavement is a nightmare for so many more reasons.

As is most often the case in Washington, this tax increase proposal will adversely impact Americans beyond its intended target. These unintended consequences will ultimately stifle investment in the economy and do lasting damage to America’s small business community.

The Biden administration markets this tax as raising the rates on the ultra-wealthy. It would take the current capital gains tax rate from 20 percent to 39.6 percent. This tax would only apply to those making more than one million dollars. That seems simple and straightforward enough. However, this does not spare families that are asset rich (to meet the threshold) but cash poor and unable to pay. The devil is in the details, and this proposal is riddled with secondary provisions that will make this tax hike a nightmare for many Americans.

First, considering other taxes on investments – as well as state and local rates – the average effective capital gains rate will go up to just under 50 percent if the administration’s proposal passes. In fact, for thirteen states, as well as the District of Columbia, the combined capital gains rate would be over 50 percent. Residents of New York City, for example, would pay a top rate of 58.2 percent. This is gratuitous.

The capital gains tax increase is insidious enough. More concerning is a proposal floating around the halls of Congress that would make it retroactive. Under the proposal, investors would have to pay the new rate on investments that were made as early as 2005. This violates a number of policy norms. Investors made investment decisions based on information available to them at the time. Many would likely have avoided the risk had they known they might soon be on the hook for a 50 percent bill. Further, given the passage of time, many Americans will have to pay taxes on assets they no longer own.

All of this reflects a massive misunderstanding about what “wealth” is and what it is not. The common understanding of wealth in the halls of Congress – as well as the White House – seems to be that net worth symbolizes liquid cash on hand. That could not be further from the truth. Net worth includes resources on hand, like property and equipment. For example, a business owner can’t pay the government 40 percent of a forklift. They will either have to sell off resources they need or sell off the business altogether.

This will inevitably harm small businesses. By creating this nightmare set of tax laws that go hand-in-hand with investment, it is no stretch to say that many investors will decide it is not worth supporting American startups or small businesses. The reward has no longer become worth the risk. The same businesses who have struggled mightily this last year will lose yet another lifeline, thanks to the administration’s proposal.

The federal government does need to consider how to pay for its exorbitantly expensive proposals. However, with proposals like these, it will be the American people who are paying for it for years to come, especially those dealing with family heartbreak. Despite the rhetoric, millionaires and non-millionaires alike will be holding the bag. The key difference is that the millionaires are the ones who might be able to afford it.


TOPICS: Business/Economy; Culture/Society; Editorial; Politics/Elections
KEYWORDS: bidenadmin; deathtax; joebiden; taxes; taxincreases

1 posted on 05/12/2021 6:55:53 AM PDT by Kaslin
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To: Kaslin

They’re the masters of using government to create problems that the government can “solve.”

Dependency’s the game, Democrat’s the name.


2 posted on 05/12/2021 7:02:41 AM PDT by BuchananBrigadeTrumpFan (If in doubt, it's probably sarcasm)
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To: Kaslin

The governments of the States should not be able to essentially appoint themselves as heirs.

There is no enumerated power for federal estate taxes, period. They are therefore forbidden by the 10th Amendment.

Progressives who take any sort of oath of office are simply lawless scum.


3 posted on 05/12/2021 7:02:43 AM PDT by Rurudyne (Standup Philosopher)
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To: BuchananBrigadeTrumpFan

In the name of “Equity” ... but where the government bureaucracy eats well and always eats first.


4 posted on 05/12/2021 7:03:52 AM PDT by Rurudyne (Standup Philosopher)
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To: Kaslin

This is just a sneaky way of confiscating private property. We’re on the road to communism, folks! Communism consists of none of the public owning property and the government owning it all.

Under communism the only people who have a lot of money and property are the favored party elite.

In the USA, after communism is installed, all the members of congress, retired or present, presidents, ex-presidents, george soros, jeff bezos, bill gates, hillary clinton, and the head of blm will all be filthy rich and telling the government what to do.

We’re not far from there.


5 posted on 05/12/2021 7:04:44 AM PDT by I want the USA back (Non-binary transnormativity is a construct of intersectionality. Leftist gobbledegook stinks.)
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To: Kaslin
This seems to be aimed at putting dairy farmers out of business.
6 posted on 05/12/2021 7:05:20 AM PDT by MRadtke (Light a candle or curse the darkness?)
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To: Rurudyne
I have been keeping meticulous records about every cent invested in our home. We have lived here 25 years and bought it before the hoards descended on this area driving the prices up to absurd levels. The “value” now is slightly below market price so when I go I am leaving instructions to have a picture of me giving the finger to the G stabled to the wall in my office. These suckers are out of control and someone needs to put them back into their box.
7 posted on 05/12/2021 7:14:35 AM PDT by Mouton (The enemy of the people is the media.)
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To: Kaslin

Getting rid of the small business owner was a key early goal of the communists in Russia.

“In order to oust the kulaks as a class, the resistance of this class must be smashed in open battle and it must be deprived of the productive sources of its existence and development (free use of land, instruments of production, land-renting, right to hire labour, etc.).
Perpetrators: Secret police of the Soviet Union
Location: Soviet Union
Date: 1929–1933
Source: https://en.wikipedia.org/wiki/Dekulakization#:~:text=%22In%20order%20to%20oust%20the,hire%20labour%2C%20etc.).


8 posted on 05/12/2021 7:17:12 AM PDT by TrumpetteNJ
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To: Mouton

Sell it before you die, you can keep all the capital gains, up to $250,000 per individual. No tax on gain of your primary residence, nor do you have spend that gain on another house or anything. It is yours to do with what you want, not so for your heirs. Courtesy of the Republican Congress of 1994.


9 posted on 05/12/2021 7:29:51 AM PDT by thirst4truth (America, What difference does it make?)
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To: Kaslin

The article makes one wrong statement.

“unintended consequences”

Every bit of destruction they make is INTENDED.

It is not their damn money! They act like it is though.


10 posted on 05/12/2021 7:34:31 AM PDT by Sequoyah101 (Politicians are only marginally good at one thing, being politicians. Otherwise they are fools.)
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To: Rurudyne

they can eat my burnt down property that has no value. If this law is enacted, expect scorched earth.


11 posted on 05/12/2021 7:37:42 AM PDT by NicoDon
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To: Kaslin

No wonder that so many wealthy people are renouncing their US citizenship. These confiscatory taxes prove that capital is mobile - and the most important capital of all is human capital, i.e. the content of their minds.

Yet another economy-destroying proposal by those who have not a single clue as to how to create wealth or jobs.


12 posted on 05/12/2021 8:42:18 AM PDT by Ancesthntr ("The right to buy weapons is the right to be free." A. E. van Vogt, “The Weapon Shops of Isher”)
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To: BuchananBrigadeTrumpFan
If Biden and his commie thugs were intentionally attempting to destroy the country - what would they do differently than they've already done?
13 posted on 05/12/2021 8:50:50 AM PDT by GOPJ (The world's thugs aren't afraid to kick sand in Biden's face... none of 'em. It's gonna get worse)
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To: I want the USA back

Wouldn’t it be better to add names to the home docs before a person dies?


14 posted on 05/12/2021 9:06:46 AM PDT by hsmomx3
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To: Kaslin

Oh how I hate this tyrannical administration.


15 posted on 05/12/2021 9:12:31 AM PDT by lastchance
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To: Ancesthntr
No wonder that so many wealthy people are renouncing their US citizenship. These confiscatory taxes prove that capital is mobile - and the most important capital of all is human capital, i.e. the content of their minds.

The truly wealthy, like Gates, the Rothchilds, and scum like the Klintons protect their wealth through trusts and foundations. These are protected 6 ways from Sunday because those death taxes were intended from the very beginning to destroy the entrepreneur class, not the truly wealthy.

16 posted on 05/12/2021 9:18:13 AM PDT by zeugma (Stop deluding yourself that America is still a free country.)
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To: Kaslin

I think this is what happens when a ‘Policy Analyst’ tries to speculate: he forgets elementary accounting:

For every debit, there must be a credit.

In order for the Estate to pay the tax, the property value gain must be recognized which means the value of the asset is written up to market value (the stepped-up basis).

If a stepped-up basis is denied, then the property value gain cannot be recognized.

In the second scenario, the heir will have to recognize the gain (and pay the tax), but the Estate will only pay the tax on the original investment.

Bottom line is that each dollar will only be taxed once. The Estate on the valuation of the original investment, and the Heir on the gain. Note that I am deliberately avoiding discussion of the taxes the original owner paid on the money used to purchase the original investment.


17 posted on 05/12/2021 10:49:54 AM PDT by beancounter13 (A Republic, if you can keep it.)
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To: Kaslin

bttt


18 posted on 05/12/2021 10:51:48 AM PDT by Pajamajan ( PRAY FOR OUR NATION. I will ever be a peaceful slave in a new Socialist America.)
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To: Kaslin

The goal is to destroy the middle class.

Nothing else matters.

Once you understand that, everything becomes more understandable.

This would destroy any meaningful inheritance.


19 posted on 05/12/2021 11:38:59 AM PDT by DoughtyOne (Folks, if you haven't yet, please start an automatic monthly for Jim and his crew.)
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