As Joe Biden and Bernie Sanders continued battling for the liberal party’s nomination for the 2020 election, both candidates promised to change how Americans are taxed. One notable difference they promise we’ll see? Estate tax increases.
Social justice issues and personal freedoms often dominate conversations during election season. But changes to the tax code have big effects on everyone, from the wealthy, who pay more into the system, to the poor, whose government benefits are funded by taxes.
Current tax on step-up in basis
Thanks to a bill passed in 2017, there is an estate and gift tax exemption of $11.58 million per individual in 2020. After the $11.58 million, estate tax increases are at 40%.
Beyond this exemption, there is a loophole in the tax provision that makes it painless for heirs to receive assets upon the death of their loved one. This loophole is called the “step-up in basis.”
The step-up in basis allows heirs to avoid paying capital gains taxes on their inheritances. If someone holds assets that have appreciated in value over time, and leaves those assets to an heir, the heir inherits these at the “stepped-up basis,” or current market value. The heir then only pays capital gains if they allow the assets to appreciate before selling.
Biden and Sanders promise to scrap old system
Both Joe Biden and Bernie Sanders had promised to make changes to the way estates are taxed.
Biden would begin taxing unrealized appreciation of assets passed on at death, scrapping the current system of allowing a step-up in basis. He would also tax appreciation on assets given as gifts while the giver is alive, and would raise the capital gains tax for households earning over $1 million.
Sanders’ system involved a tiered system for taxing the estates of the very wealthy. At the bottom of his bracket are estates valued between $3.5 million and $10 million, which would be taxed at 45%. At the top of his bracket are estates valued at a billion or more, which would be taxed at 77%.
Both candidates aim to create a slightly more even playing field for Americans, preventing massive generational wealth from passing hands tax-free. Either candidate would need to pass these changes through Congress, which could be difficult if the liberal party does not control both chambers.
Kim Tucker Campo
Old Westbury
Original source: https://liberals.com/2020/04/24/liberal-candidates-eye-estate-tax-increases
