Biden Retreats on Key 2020 Campaign Promise. Will Progressive Be Enraged?

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Posted: Apr 27, 2021 7:45 PM
Biden Retreats on Key 2020 Campaign Promise. Will Progressive Be Enraged?

Source: AP Photo/Evan Vucci

Joe Biden is backtracking on a 2020 campaign pledge to increase estate taxes, according to folks familiar with his address to Congress tomorrow night. Bloomberg noted that the president won’t include a proposal to hike death taxes. Yet, the elimination of the so-called “stepped up in basis” loophole could screw over the middle-class Kelly Johnston wrote a good op-ed in InsideSources today about what this will entail, and the legislative creep it could lead to with regards to pensions of IRA accounts

Meet stepped-up basis. 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 Biden plan may exempt the first $1 million of “unrealized” gains, but that’s a shallow threshold for many family businesses and farms. And it is not just homes or beach property. It includes stocks and family businesses.

Being allowed to keep your or your family’s own money is now a “tax loophole.”

[…]

Whose money do the Democrats think we’re talking about? They seem to think all money is the government’s, and they’re letting you keep some of it. They clearly believe that they can spend it better than you. It doesn’t take long before that extends into other private property.

Yet, the retreat in death taxes might cause some heartburn for progressives, but you never know—some might understand the political situation and that some items might have to be sacrificed until a later date. At the same time, a tantrum from this left flank of the Democratic Party has been enough to spook Biden to reverse course. On Immigration, Biden was set to keep the caps on admitting refugees set by the Trump administration. Left-wingers went ballistic and Biden relented. Will that happen again here?  

Via Bloomberg:

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.

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. 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’s often not subject to taxation.

Still, Biden’s coming tax package will feature an end to a major benefit for wealthy estates that drastically minimizes the levy for inheritors.

Ending “step up in basis,” which 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, would mean much higher tax bills for wealthy estates.

And apparently, middle-class families as well.