NICHOLAS KAMM | AFP | Getty Images
Uber rich could appreciate the tax reforms proposed by the House Democrats on income from investment in relation to the Biden administration’s previous plan.
The White House has demanded 39.6% of the highest federal rate for long-term capital gains and dividends – almost double the current 20%.
The long-term tax on capital gains applies to assets such as shares and houses that have grown in value and been held for at least one year; taxpayers owe money for appreciation when they sell an asset. A tax on dividends applies to the distributions of profits that companies make to their shareholders.
Biden’s policy would apply only to the richest Americans – the first 0.3%, or those with $ 1 million or more in revenue. It would be among the highest rates of capital gains and dividends in the developed world.
But House and Means Committee legislation unveiled Monday will tax capital gains and dividends at a much lower, 25% rate. The House proposal would apply to single candidates with at least $ 400,000 in income and married couples with $ 450,000.
In other words: the Biden plan would raise the higher federal tax rate by 98% (compared to current law) for wealthier Americans, while the House proposal would increase it by 25%. The House plan would also increase taxes for a wider band of people.
“This change is FANTASTIC for uber rich people,” wrote Jeffrey Levine, certified accountant and financial planner, who serves as head of planning at Buckingham Wealth Partners, Tweet.
“For the ‘only’ rich taxpayer though? Not so much,” he added.
An existing 3.8% Medicare surcharge and state deductions will come on top of any changes in the federal rate.
The rich get more of their income from investments against wages compared to low and middle wages.
For example, the first 0.1%, who earn $ 3.4 million or more, earn more than half of their annual income from capital gains, dividends and interest; a quarter is from salaries and benefits, according to a Fiscal Policy Center analysis from 2019.
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In comparison, wages and benefits account for about 60% to 70% of annual income for taxpayers outside the richest 1%, according to the analysis.
“[The House proposal] it’s obviously not as punitive from their point of view as the original proposals were, ”said James Hines Jr., professor of economics and director of research at the University of Michigan’s Office of Fiscal Policy Research. , of the rich.
Of course, rich Americans could not encourage any proposals; Hines said they would have preferred that their tax rate never increase.
Capital projects to death
The plans also differ in how they tax the heirs they have valued significantly in value.
Biden’s plan would be imposes the appreciation of an asset on the death of its owner. This would aim to prevent the super rich from continuously passing on stocks and other financial assets to the next generation for little or no tax.
(Capital gains of less than $ 1 million for single candidates and $ 2.5 million for married couples will be exempt.)
The House plan retains the status quo, which does not impose this tax on death. Existing law also allows heirs to receive an asset at its current value, canceling the card gain and thus diluting their future tax bill if they sell.
Wealthier families receive the largest inheritances – $ 719,000, on average, at the time of inheritance, according to to the Federal Reserve’s Survey on Consumer Finance. (The average for all Americans is $ 46,000.)
Heirs are not necessarily attributable to capital gains. But a significant portion of the economic gains for the wealthiest Americans are attributable to unrealized capital gains, according to the Federal Reserve. About 41% of the top 1% has an unrealized capital gain.
Of course, the final legislation could eventually change from the House and Biden proposals as Democrats seek to raise money for up to $ 3.5 trillion in education, health care, child care, climate, paid leave and other measures.
“We are now in the second or third entry,” said Leon LaBrecque, certified accountant and financial planner at Sequoia Financial Group.