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Want to know where the 2020 presidential election is heading? Don’t obsess about the polls. Pay attention to the tax lawyers and accountants who cater to America’s most wealthy.
These experts in saving the rich millions and billions at tax time understand what Americans as a whole still haven’t quite fathomed: The nation’s wealthiest will likely pay significantly more in taxes if Joe Biden becomes president. If these rich don’t take immediate steps to “protect their fortunes,” their law firms are advising, they could lose out big-time to Uncle Sam.
The rich people-friendly tax law that Donald Trump signed in 2017, “wealth preservation” professionals are warning, may soon be shredded.
“We’ve been telling people: ‘Use it or lose it,’” Jere Doyle, a strategist at BNY Mellon Wealth Management, told Bloomberg earlier this month.
“Come in now,” Withers law partner Edward Renn says his firm is telling its deep-pocket clients.
“High net worth individuals,” add legal experts at JD Supra, “should be working with their investment and tax advisors to lock in on tax savings prior to year-end.”
Those who owe their comfy livelihoods to keeping rich people rich have good reason for wanting to panic their clients. But that panic push, at first glance, does seem somewhat overblown. Under the tax plan Joe Biden is advancing, the tax rate on income in America’s top tax bracket would rise only from the current Trump-era 37 percent back up to 39.6 percent, the Obama-era rate, hardly a backbreaker of an increase.
The “backbreakers” — for the rich — come elsewhere in the Biden plan. Among the biggest: a new tax treatment for “investment income,” the money rich people make buying and selling assets and collecting dividends. Most all of this income currently enjoys a super-discounted tax rate.
What sort of difference does this discount make? Consider a star baseball player who makes $2 million a year. That ballplayer, under current law, faces a 37 percent tax rate on top-bracket income, anything over $622,050 for a couple filing jointly.
Now consider your typical Wall Street wheeler-dealers. These speculators face a mere 20 percent levy on the jackpots all their wheeling and dealing ends up generating.
The Biden tax plan ends this favorable treatment of income from “capital gains.” All investment gains for taxpayers making over $1 million would face the same tax rate as the “ordinary” wage and salary income average working people struggle and sweat to make.
Under current law, wealthy taxpayers can also avoid taxes on their capital gains simply by passing on their appreciated assets to their heirs. These heirs don’t have to pay any taxes on the gains in value these assets may have registered before their sugar-daddy hit the bucket.
So say a billionaire buys an asset for $10 million and watches over the years as that asset grows in value to $100 million. If that billionaire sold that asset, the sale would generate a tax on the $90-million profit. But the billionaire can avoid that tax by bequeathing the asset to an heir.
That heir owes no tax on the $90-million gain. If the heir should sell this inherited asset for $105 million one year later, the heir would only owe tax — under existing law — on the $5 million gain in the asset’s value over the previous year. The gain from $10 to $100 million would remain totally untaxed. Biden’s tax plan would subject that entire gain to tax.
Biden is also proposing an overhaul of how the federal government levies taxes for Social Security.
The current 12.4 percent Social Security payroll tax — half paid by employers, half by employees — applies this year to only the first $137,700 in paycheck earnings, a figure that gets annually adjusted to inflation. In 2020, a corporate executive who makes $1 million a year will pay the same Social Security tax as a person who makes $137,700.
Biden’s plan would apply the Social Security tax to all paycheck income over $400,000 as well.
The corporations America’s rich run would also pay more in taxes under the Biden plan. His proposals raise the standard corporate income tax rate from 21 to 28 percent, set a 15 percent minimum tax on corporate profits, and double the current minimum tax foreign subsidiaries of U.S. companies have to pay from 10.5 to 21 percent.
Specific industries, under the Biden plan, would lose an assortment of additional tax-time perks. Big Pharma companies would no longer get tax deductions for what they spend on advertising. Real estate moguls would no longer be able to depreciate the rental housing they own on an accelerated schedule, and fossil-fuel companies would lose a variety of lucrative tax preferences.
The Biden plan features a wide array of other progressive provisions that would help shift the overall tax burden from average Americans to the awesomely affluent. The overall impact of the Biden plan on economic inequality? The Institute on Taxation and Economic Policy has crunched the numbers.