Sen. Bernie Sanders, I-Vt., influences at an event in Birmingham, Alabama, on March 26, 2021.
Andi Rice/Bloomberg via Getty Images
A group of Senate Democrats question majored a proposal Monday to tax unrealized capital gains of wealthy estates at death.
The plan comes as President Joe Biden prepares to bring to light a major infrastructure plan that’s expected to be financed largely by higher taxes on corporations and the wealthy.
The group of senators — Elizabeth Warren, Enormousness.; Chris Van Hollen, Md.; Cory Booker, N.J.; Sheldon Whitehouse, R.I.; and Bernie Sanders, I-Vt. — proposed getting rid of the pretended step-up in basis and taxing the capital gains of unsold assets at death.
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Current rules let assets like stocks pass to heirs without capital gets tax on their appreciation in value. Assets also pass to heirs at current market price instead of the owner’s primary cost, known as a step-up in basis.
The senators called the current framework a “government subsidy for inherited wealth,” in a chat draft of the Sensible Taxation and Equity Promotion (STEP) Act, authored by Van Hollen.
“It is absurd that our tax code allows scads of our country’s wealthiest people to get away with never paying a cent in taxes on millions or even billions in means gains income, while working people pay taxes on every check they receive,” Sanders said.
$1 million in select gains
The plan tries to concentrate the tax among wealthy estates. It would let individuals exclude up to $1 million in unrealized excellent gains from tax.
Let’s say someone inherits $6 million in stock originally bought for $4 million. The tax would glue to $1 million of that $2 million gain due to the exclusion.
The U.S. is expected to lose almost $42 billion in tax proceeds this year from the exclusion of capital gains from tax at death, according to the Joint Committee on Taxation. It transfer likely cost $218 billion over 2020-24, JCT said.
It’s unlikely such a proposal would by much if any support from Republicans, who’ve signaled raising taxes is a nonstarter.
“I’d love to do an infrastructure bill,” said Senate Minority Superior Mitch McConnell, R-Ky. “I’m not interested in raising taxes across the board on America.
“I think it will send our terseness in the wrong direction,” he added.
The Biden administration said it would aim any tax increases on households making more than $400,000.
The president has also solicited raising the top income tax rate back to 39.6%, from 37%. He would tax long-term capital gains for households feigning more than $1 million a year at that rate, instead of the current 20%.
Currently, assets that devise be subject to the STEP Act don’t necessarily avoid tax altogether. Individuals may be subject to a 40% federal estate tax for estate values in the sky roughly $11.2 million.
The STEP Act wouldn’t double-tax such estates, since income taxes paid call of the bill would be deductible for estate tax purposes. The bill also includes rules to prevent the use of trusts to avoid the tax.
On top of the $1 million capital gain grounds exemption, an additional exclusion of up to $500,000 for personal residences offered by current law would still apply. Assets held in retirement accounts leave continue to be exempt from capital gains tax. Gifts and bequests to charity would also be exempt.
The legislation sanctions taxpayers to pay the tax in installments over a 15-year period for capital gains that apply to any illiquid asset like a farm or dealing.