Tax dividends and realized capital gains of very high-income households at the same rates as wage, salary, and interest income.The Biden plan would significantly reduce these preferences. Tax policy changes in recent decades have expanded these tax advantages. The Biden plan would eliminate the stepped-up basis loophole for wealthy households.Īnother tax advantage for wealthy households is that a significant share of the income that does show up on their annual tax returns - such as corporate dividends or “realized” capital gains income from a sale of stock or other property - is taxed at lower rates than the top rate on wages, salaries, and interest from savings accounts and corporate bonds. This is known as the “stepped-up basis” loophole because the asset’s basis - or the price originally paid for it - is “stepped up” to its fair market value at the time of inheritance, without anyone paying income tax on those accrued gains. Under current law, capital gains that people accrue over their lifetimes are simply erased when they die, so they don’t have to pay tax on capital gains income each year and neither they nor their heirs ever have to pay income tax on it. (As noted below, proposals to adopt a “mark-to-market” system for taxing capital gains are designed to eliminate this advantage and to tax the capital gains income of wealthy people as it accrues each year.) But the Biden plan would require wealthy people to pay income taxes on a lifetime of previously untaxed capital gains when they die. "The Biden plan would require wealthy people to pay income taxes on a lifetime of previously untaxed capital gains when they die."The Biden plan wouldn’t eliminate this special treatment and would still allow wealthy people to not have to pay tax on a main source of their income year-to-year. Unlike wages or salaries, which make up the majority of most households’ income and are taxed each year, capital gains income benefits from “deferral,” meaning it isn’t taxed in a given year unless the asset is sold, which effectively allows the asset’s owner to decide when to pay tax. Much of wealthy households’ income comes from capital gains, such as the increase in the value of corporate stock or real estate. And even as the economic fallout from COVID-19 has harshly affected millions of Americans, wealthier households have largely prospered - a dichotomy known as the “K-shaped recovery.” Against this backdrop, and with the nation facing significant investment needs, it’s vital that policymakers reconsider the special tax treatment that wealthy people enjoy. Income and wealth have become increasingly concentrated in recent decades as the fortunes of those at the very top have surged, while low- and middle-income people have seen much smaller gains. Contrary to overheated rhetoric by opponents of raising revenues from wealthy households, the President’s plan takes a measured approach to reforming the tax code’s treatment of wealthy households. The plan would also address the nation’s massive “tax gap” - the gap between what taxpayers owe and what they pay - which disproportionately reflects taxes not paid by those at the top. President Biden’s American Families Plan would take important steps toward requiring wealthy people to pay a fairer amount of tax on their income, much of which never faces income taxes or benefits from special low rates.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |