This is how Democrats want to raise taxes on the rich

Democrats will soon be able to raise taxes on the rich as lawmakers pivot toward priorities beyond pandemic relief.

According to tax experts, there could be a change in the way Uncle Sam taxes the wealth assets, capital gains and estates of the super-rich.

The White House and Congress Democrats have looked at higher taxes to raise billions of dollars in additional revenue to, for example, improve the country’s infrastructure and combat climate change.

President Joe Biden and his advisers are considering up to $ 3 trillion in new spending for those efforts, the New York Times reported Monday.

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Radical changes to the tax code may not occur, especially if they require Republican support. But wealthier Americans can expect at least some kind of tax increase, experts said.

“The question we’re really dealing with now is not whether tax rates will increase, but when, and what taxes?” said Alison Hutchinson, managing director and senior wealth planner for Brown Brother Harriman in New York.

Basically, Biden’s tax plan focuses on raising taxes for Americans who earn more than $ 400,000 (it’s still unclear if it’s for families or per person). The plan would increase the higher rate of income tax and tax more of your Social Security income, for example.

And Biden would further raise taxes for millionaires and billionaires.

For example, it wants to tax long-term capital gains at the same rate as the wages of families earning more than $ 1 million a year.

Currently, wealthy Americans pay a 37% rate on wages and a 20% lower rate on investment earnings (plus 3.8% of the additional rate).

Biden’s tax plan would raise the millionaire’s capital gains tax to 39.6%, the same rate at which the president would tax the labor income of the highest-income workers.

Treasury Secretary Janet Yellen told the Senate in January that this change in capital gains taxes was a long-term goal of the Biden administration.

“We recognize that our tax system cannot lean toward corporate interests and the rich, while those who are sustained primarily by wages have an unequal burden,” he said in a written testimony during his confirmation hearing.

The policy of capital gains, however, could extend beyond the rich.

This could happen if an entrepreneur who earns $ 75,000 a year sells his business for more than a million dollars, for example, said Robert Keebler, a tax advisor and certified public accountant in Green Bay, Wisconsin.

“It could be argued that it’s fair for a Wall Street mogul to make a lot of money every year, but it might not seem so fair to a guy who sells his business a year,” Keebler said.

Biden has also proposed changing the rules on wealth transfers, as is the case with property tax and gifts.

Current legislation allows heirs to receive an asset such as a stock or home at their current market rate (rather than the cost of the original owner) courtesy of a “base increase” on death.

This allows the heir to sell the asset without paying taxes on the appreciation of the owner’s life.

On the campaign trail, Biden said he would eliminate progression.

It would also reduce the amount individuals can transfer without paying property and gift taxes, to $ 3.5 million in death bequests and $ 1 million in lifetime gifts. There is also the possibility that Biden will raise the current 40% tax rate, said Bruce Steiner, a lawyer for Kleinberg, Kaplan, Wolff and Cohen.

The Tax and Jobs Reduction Act raised the tax threshold to $ 11.7 million for individuals in 2017. This threshold will revert to pre-TCJA limits in 2026, due to the provisions of fall provided by law.

This means that more properties (those over $ 5.5 million for individuals) will automatically be subject to wealth transfer taxes in a few years.

“If Congress can’t agree on anything, that’s what would happen anyway,” Steiner said.

Biden has not proposed an annual tax on total wealth. Still, politics is on the wish list of some of the more liberal members of the House and Senate.

Senator Elizabeth Warren, D-Mass .; Senator Bernie Sanders, I-Vt .; and eight other Democrats proposed the Ultra-Millionaire Tax Act in early March.

The bill would levy a 2% wealth tax on net worth of households and trusts ranging from $ 50 billion to $ 1 billion. The tax would be 3% for anything over $ 1 billion.

About 100,000 Americans would be subject to wealth tax in 2023, according to Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley. The policy would raise at least $ 3 trillion in a decade, they found.

“When people universally apply the Warren Wealth Tax and say there’s a low probability, I agree that the first cut won’t be signed by Congress,” Hutchinson said. “But I think tax planners should focus on these kinds of proposals, because something like that could turn out to be very good.”