Former Democratic senator sounds the alarm on Biden’s tax plan
Former Democratic Senator Heidi Heitkamp, one of the party’s main tax policy voices, said President Joe Biden’s proposal to tax assets appreciated on death would hurt family farms and family businesses.
“I’m trying to sound the alarm bells, both economically and politically, for Democrats that this is not a way forward,” she said in an interview on “Squawk Box”. “The disruption this would create for small family businesses, farmers and family assets is not worth it.”
Biden has proposed taxing assets appreciated at death for income above $ 1 million. He also proposed to increase the capital gains tax to the rate of ordinary income. The plan is to be debated as part of the reconciliation bill in Congress. According to his proposal, individuals who inherit private businesses or assets worth millions could be subject to an immediate capital gains tax of more than 40%, even if they don’t sell.
Currently, under what is known as the “gross-up basis”, individuals can inherit valued assets without paying tax and the value is “increased” to current valuations, effectively wiping out the deceased’s gain for tax purposes. Biden and many progressive Democrats say the increase represents a giant loophole for the wealthy, allowing millionaires and billionaires to pass businesses and assets on to their families for generations without ever paying capital gains tax.
Heitkamp, who served in the Senate until 2019, chairs a new nonprofit called Save America’s Family Enterprises (SAFE), which campaigns against the proposal and runs ads featuring family businesses. Neither Heitkamp nor the group disclose their donors.
Heitkamp said she was in favor of increasing the capital gains tax to ordinary income rates because “unearned income should not be taxed at such a lower rate than earned income.” She is also in favor of eliminating the mark-up base, so that assets are not “upgraded” to re-valuation when inherited, but retain their original basis when sold.
Her opposition to Biden’s plan is the immediate death tax, she said. Families should only pay capital gains tax when the asset is sold and the gain is realized, she explained.
“The thing that I find most disturbing is that all of a sudden, for the first time, we’re going to be taxing unrealized capital gains,” she said. “My position has always been that you have to realize the added value.”
She gave the example of a truck driver named Sam, whose family has owned a cabin on a lake in Minnesota for generations and has seen its value skyrocket over time with gentrification. Next door, a wealthy buyer buys land for $ 2 million and builds a mansion for $ 2 million. If both die, the wealthy landowner could pass his property on to his family and pay no taxes, as they would have a high current base. Sam’s family, however, is potentially owed millions in taxes upon his death, even if the family does not sell the property.
She said the same would apply to family businesses and farms.
“Family assets are more than a balance sheet,” she said. “Family assets are about where we work, where we live and where we recreate ourselves. When you look at the taxation of unrealized capital gains, you open up a Pandora’s Box that won’t be closed for a very, very long time. “
The White House said family farms and family businesses would be exempt from the tax until assets are sold. Families will also have up to 15 years to pay the tax to ease the pressure on them to sell immediately. A White House analysis said only the richest 0.3% of taxpayers would be liable for tax, as couples can get exemptions of up to $ 2.5 million if that includes real estate .
Howard Gleckman, senior researcher at the Urban-Brookings Tax Policy Center at the Urban Institute, said Biden’s plan to tax appreciated assets on death is a key part of the overall plan to increase capital gains rates at ordinary income rates. Without taxing the assets appreciated on death, he said, wealthy families would simply hold onto the assets indefinitely to avoid the higher capital gains tax.
“Biden’s proposal to raise capital gains tax rates to ordinary income rates would generate very little income and have disruptive economic effects without some form of achievement on death,” he said. Even with an increase, tax would not be paid until the heirs sell, which could take decades after the death of the original investor. This foreclosure could leave investments stranded in underperforming assets for generations. ”