Here’s how Democrats want to raise taxes on the rich

ANASTASIA ZYG


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Democrats may soon be raising taxes on the rich, as lawmakers pivot to priorities beyond pandemic relief.

A change in the way Uncle Sam taxes the wealth, capital gains and estates of the super wealthy may be on the table, according to tax experts.   

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

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

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There’s a chance sweeping changes to the tax code may not come to pass, especially if they require Republican backing. But the richest Americans can expect at least some kind of tax hike, experts said.

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

Capital gains taxes

The Biden tax plan would up the capital gains tax for millionaires to 39.6% — the same rate at which the president would tax job income for high earners.

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

“We recognize that our tax system cannot be tilted toward corporate interests and the wealthy, while those that are sustained predominately by wages bear an unequal burden,” she said in written testimony during her confirmation hearing.

The capital gains policy could stretch beyond the consistently rich, though.

That could happen if a business owner who makes $75,000 a year sells their company for more than $1 million, for example, said Robert Keebler, a tax advisor and certified public accountant in Green Bay, Wisconsin.

“You could argue that’s fair for a Wall Street tycoon making a lot of money each year, but it might not seem so fair to a guy who sells his business one year,” Keebler said.

Estate tax rules

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

Bruce Steiner

attorney at Kleinberg, Kaplan, Wolff & Cohen

He’d also reduce the amount individuals can transfer without paying estate and gift taxes, to $3.5 million in bequeaths at death and $1 million in lifetime gifts. There’s also a chance Biden may raise the tax rate from the current 40%, said Bruce Steiner, an attorney at Kleinberg, Kaplan, Wolff & Cohen.

The Tax Cuts and Jobs Act raised the tax-free threshold to $11.7 million for individuals in 2017. That threshold will revert to the pre-TCJA caps in 2026, due to sunset provisions baked into in the law.

That means more estates (those over about $5.5 million for individuals) will automatically be subject to taxes on wealth transfers in a few years.

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

Wealth tax

Sen. Elizabeth Warren, D-Mass., holds a news conference to announce legislation that would tax the net worth of America’s wealthiest individuals on March 1, 2021 in Washington.

Chip Somodevilla | Getty Images News | Getty Images



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