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Both of these plans are great, actually. But yes, Biden will make people snooze by using technical language like "step up in basis." He should describe his plan as "ending a $60 billion tax break for inherited wealth," which I think more people would understand.
Quick primer for those who don't know what the the "step up in basis" rule is.
Capital gains tax is calculated based on how much you bought an asset for versus how much you sell it for later. The "step up in basis rule" says that if someone dies and you inherit their assets...
Capital gains tax is calculated based on how much you bought an asset for versus how much you sell it for later. The "step up in basis rule" says that if someone dies and you inherit their assets...
...then you don't have to pay tax on the value of the assets when the original person bought them.
It "resets the clock," so to speak, so heirs and heiresses don't pay tax on the original person's capital gains.
It's a big tax break for the wealthy. americanprogress.org/issues/general…
It "resets the clock," so to speak, so heirs and heiresses don't pay tax on the original person's capital gains.
It's a big tax break for the wealthy. americanprogress.org/issues/general…
Why does this rule exist? Well, the thinking was that wealthy people are already going to pay estate tax on the assets, so it would be unfair for the government to "double dip".
But these days, almost no one has to pay estate tax. It only applies to estates $11 million and up.
But these days, almost no one has to pay estate tax. It only applies to estates $11 million and up.
That means the children of multimillionaires could inherit a $10 million portfolio, sell it all the instant they get it, and pay ZERO tax on it.
The step-up rule also discourages reinvestment, by making older people hold onto assets they'd otherwise sell. taxfoundation.org/step-up-in-bas…
The step-up rule also discourages reinvestment, by making older people hold onto assets they'd otherwise sell. taxfoundation.org/step-up-in-bas…
So Biden's plan is a very good one. Step up in basis should be repealed, at the very least for people below the limit for estate tax.
It's just very complicated to explain all this from a political stage.
It's just very complicated to explain all this from a political stage.
