What is a "death tax" and what's Biden proposal?
President Biden wants to change how a person’s assets are taxed when they are passed on to heirs to stop exacerbating inequality and create a fairer system.
The moniker “death tax” is used instead of inheritance or estate tax by those who want to abolish accumulated wealth being taxed when it is passed down. President Biden is proposing changing how estates are taxed, removing a loophole used by the wealthiest Americans to entirely escape tax on their estates.
Normally when a mortal, and living, soul sells an asset (stocks, property or other item of value) the IRS will tax the individual on the gains accrued from the time of its original purchase. However, under current law an asset is “stepped-up” to its current valuation upon being inherited so the heir will only pay tax on the accumulated value from that point should they decide to sell it in the future. The original owner never pays capital gains on the asset since it wasn’t sold. This process allows property to pass from one generation to the next to escape taxation entirely.
What is Biden proposing for the “death tax”?
President Biden is calling for a slew of tax hikes on the wealthiest Americans but has promised that these won’t affect those make less than $400,000 in order to pay for his American Families Plan. The increased taxes would also help pay for greater enforcement of the tax code to reduce the tax gap whereby the United States loses out on vast sums of uncollected tax dollars. IRS Commissioner Charles Rettig told Congress in April that the United States is losing around $1 trillion in unpaid taxes every year.
The Biden estate tax plan exempts those who inherit a family business from paying capital gains tax until they sell it, so there’s no need for anyone to fret about the family farm or the beloved multigenerational family restaurant. https://t.co/7AXG8FoJqZ— The New Republic (@newrepublic) June 18, 2021
Biden wants to do away with the “step-up” the basis for gains on assets, when combined with existing real estate exemptions, valued over $1 million for individuals and $2.5 million per couple. Property donated to charity wouldn’t be taxed. The new rules would be designed to protect family-owned businesses and farms when the heir takes over running the business.
Currently heirs have to pay up to 40 percent in estate taxes valued in excess of $11.7 million. In 2019 fewer than one in every thousand people who died left an estate on which taxes had to be paid according to a Bloomberg report.
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