Golf’s U.S. Open is scheduled for this fall in New York. The winner of the U.S. Open will earn $2.25 million pre-tax. This year, the victorious professional golfer will pay federal and state taxes of about 46 percent. That makes the split: golfer $1.22 million; government: $1.03 million. Joe Biden wants to put an additional 12.4 percent self-employment tax on the winner along with increasing regular income tax rates by 2.6 percent. Under Joe’s proposals, the Biden tax rate gets to a tax rate of 61 percent depending on the golfer’s home state. That makes the split: golfer: $877 thousand; government: $1.38 million.
For most professional athletes who are members of sports teams and are therefore highly paid employees, the proposed employment tax would be an additional 6.2 percent with the sports team also incurring a 6.2 percent tax. This along with the increase in individual tax rates would cost Cam Newton as much as $1.1 million in 2021 and Stephen Curry $6.0 million. The 6.2 percent tax on the employer would cost the Boston Red Sox $11.6 million, which would increase Red Sox ticket prices by about $4.00 per ticket.
Mr. Biden also wants to eliminate what is called the step-up in basis on assets received from an individual’s estate after they die. Along with that, he wants to eliminate capital gains tax benefits (an article in itself) and tax all capital gains at 39.6 percent. The toxicity of combining these proposals would create an effective estate tax rate of almost 100 percent.
On its face without adding pages and pages of technical additions to the Internal Revenue Code to reduce the impact of Mr. Biden’s proposals, for anyone who formed their own business and was monumentally successful, Mr. Biden’s tax proposals would move the effective estate tax rate from 40 percent to 93 percent.
How would that happen? Let’s use Jeffrey Bezos as our example. Mr. Bezos created Amazon and has virtually no basis (cost) in his shares. Today, if he died and left the stock to his heirs, the estate would pay a 40 percent estate tax and, when his heirs sold their stock, they would have no accompanying income taxes. If as Mr. Biden proposes, they were then faced with a federal income tax (and presumedly a state income tax) upon the sale of the Amazon stock, they would face another tax of 53 percent. Yes, ultimately a 93 percent tax on the estate assets.
Of interest, a 93 percent effective estate tax would kill off the family farm and create new “charitable organizations” which would keep the money from the government. There is no way any ultra-rich individual is going to allow a result where the government gets all of the benefits of a lifetime of hard work.
Mr. Biden wants to increase the corporate tax rate to 28 percent from 21 percent. The average corporate tax rate in the EU is 21.77 percent. The worldwide trend has been to reduce corporate tax rates and encourage business and commerce. (The reality is that consumers ultimately pay the corporate tax through the purchase of goods and services.) That is bad for every American.
One of the goals and objectives of U.S. tax policy has been to increase manufacturing activity in the United States and simultaneously increase U.S. employment. Increasing U.S. tax rates over the rates of other countries will slow or stop the return of manufacturing to the United States.
If the goal of tax policy is to reduce employment and shrink GNP, these are all great ideas.
Of course, there is the feeding of Democratic donors. Speaker of the House Nancy Pelosi proposed a $135 billion federal gift to taxpayers earning over $100,000 by providing deductions for state and local taxes. This is unmentioned by Mr. Biden.