Taxes

Biden's New Death Tax Hits the Middle Class While Excluding Certain Wealthy Investors

The American Families Plan hits individuals with identical net worths very differently.

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President Joe Biden's American Families Plan (AFP) would impose a capital gains tax at death while essentially doubling the capital gains tax rate. With a major exception for large investors, it would make these changes without grandfathering existing unrealized capital gains.

This death tax would likely hit single taxpayers who own their homes more than married couples, because the appreciation of a home is not impacted by the owner's marital status. A single person with a reasonable mortgage and some modest other capital gains assets at death could have her residence's value eaten away by the new tax plus the mortgage.

Consider a single woman who has owned a New York apartment, her only asset, for 40 years. Jane has never made anywhere near $400,000 a year, so Biden has promised to not raise her taxes. She has two adult children who are also firmly in the middle class. Like all New York residential property, Jane's apartment has increased in value dramatically since her purchase after her husband's death in 1981. And like many widows, she refinanced her apartment to pay for her children's college educations, for weddings, and for a couple of vacations. Today, her $200,000 apartment has a fair market value of $2,000,000. She has a mortgage of $1,500,000.

A 40 percent capital gains tax at death after the exclusions allowed in the AFP would result in a tax of $220,000. Add the costs of the mortgage, and her children or grandchildren would see their inheritance reduced from $500,000 under current law to $280,000.

Many middle-income Americans who have only dreamed of a year with $400,000 in taxable income would be faced with this potentially confiscatory tax at death. Taxpayers who expected to leave a nice nest egg for their children or grandchildren would see a significant portion of it go to the federal government instead.

Under the AFP, the maximum federal rate on capital gains would increase from 23.8 percent to 40.8 percent. This would be calculated with two exemptions during life and an added third exemption at death. During life and at death, taxpayers would exclude $250,000 ($500,000 for couples filing jointly) on gains from the sale of a personal residence, and taxpayers would exclude up to 100 percent of income from any qualified small business stock gains. At death, there would be an added exclusion of $1 million of capital gains ($2 million joint).

Current law excludes anyone with less than $11.7 million of net worth ($23.4 million for married couples) from any death taxes. Today, this means that $11.7 million can be passed along to family members without any reduction. But the AFP would subject taxpayers with a net worth far lower than $11.7 to a death tax. This levy would allow no deduction for any debt, whether that debt is secured debt on specific assets or personal unsecured debt.

Without grandfathering of gains at the date of passage, millions of taxpayers would see decades of investment and planning for their families reduced or evaporated in an instant.

During life, a taxpayer can determine if there should be a sale of any capital asset; a tax on the unrealized gain at death would not provide such a choice. A tax on unrealized capital gains at death would for some taxpayers result in tax rates approaching or exceeding 100 percent of the net worth of leveraged property.

For example, a taxpayer who has owned rental real estate for decades would have a tax basis after depreciation equal to the land value at acquisition. A long-owned residential rental property in Southern California could easily have a fair market value of $2 million and a tax basis of only $10,000. If a descendant had other gains in excess of the exemptions, a gain of $1,990,000 would result in a federal tax of around $800,000. If there was an existing 60 percent mortgage, the proposed tax plus the mortgage would sweep away 100 percent of the equity, leaving nothing for the family of the deceased.

The White House fact sheet on the AFP claims that it would ensure "that the wealthiest Americans play by the same rules as all other Americans." But there is one exception to the lack of grandfathering of unrealized capital gains: the continuance of the 100 percent exemption for capital gains taxes from sales of qualified small business stock (QSBS). Such stock is issued by an active domestic C corporation, and it is most often found in the hands of very wealthy investors. The public has the opportunity to purchase stock in such a corporation only if there is an initial public offering, but the opportunity to buy it is rarely available to smaller investors. This is the domain of Wall Street venture capitalists.

So the AFP is exempting perhaps billions of dollars of capital gains income from exactly the income group who Biden has stated he wants to tax. At the same time, the law would create a death tax for millions of middle-class Americans.

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  1. This closely follows the established principles of the government, Democrats in particular.
    “We see that you have money. We want money. Give us your money.”

    1. “…unless you’re a big campaign contributor. Then we can work something out.”

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    2. This is what happens when everyone takes a year off and money is created en masse. Incomes have fallen, but capital gains/appreciation are soaring. Someone in the vicinity of ol’ joe has figured out the solution: tax asset appreciation (capital gains) of the middle class.

      Brilliant! Those poors thought they were gonna live easy and actually retire off of the value of their homes. Well, let’s set them straight.

      The middle class: America’s feeding trough.

      1. The middle class was always going to be the one to get hit.

        Even when they put out their plans on doing it by taxing the rich (at least half of which was dream money they weren’t really going to get) 80% of their new spending was still not going to be covered.

        Taxing the 1% more, (who already pay some 20% of the countries taxes) was still just going to cover a fraction of their spending spree.

        Anyone with a brain could see that the middle class would absolutely have to be taxed to make the fevered spending possible. They voted him in, they can eat it now.

        1. The left’s goal is to gut the middle class. It’s the neo feudal vision: government/oligarch ruling class upon whom a small number of vassal lords/mandarins are dependent, with independent earners squeezed between them and the hordes of peasantry on government payroll.
          It’s the subsidized class’ war on the productive class.

          1. Bourgeoisie aren’t defenders of the Revolution.

      2. “…This is what happens when everyone takes a year off and money is created en masse…”

        Hey, lying pile of lefty shit! Still waiting for that ONE cite where you found Ken lying, asshole.
        Just ONE, that’s all lying pile of lefty shit.

      3. Yet you’re a democrat supporter………

        1. He voted GOP once in Portland. Lol.

          1. And he’s a badass commando too!

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      4. Man, if only there had been someone that was pointing out that Biden was full of shit when he said he wasn’t going to raise taxes on the middle class….

        1. …DOL would have called them a CULT! member.

      5. Said the guy who applied for PPP.

    3. they don’t care if you have it or not they just want it.

      1. this man is doing same things as modi https://peryourhealth.club/

  2. SleepyJoe is just sick.

    1. What did you expert from the lying bastard.

  3. “So the AFP is exempting perhaps billions of dollars of capital gains income from exactly the income group who Biden has stated he wants to tax. At the same time, the law would create a death tax for millions of middle-class Americans.”

    Yet another example of OpenBordersLiberal-tarian’s First Law. Democrats campaign as the party that wants to help the middle class and poor — then govern as the party of the rich. Which is why savvy Koch-funded libertarians overwhelmingly endorsed Biden.

    #LibertariansForBiden

    1. And while Biden attempts to impose more taxes on the middle class, Reason.com’s benefactor Charles Koch has increased his net worth by about $6 billion in half a year.

      Most. Libertarian. President. Ever.

      #InDefenseOfBillionaires

      1. C. Koch’s $6B increase is a tad less than 10%. Meanwhile, the S&P 500 is up more than 15% in the same period. Do better, Charles!

      2. Out of 24 Reason staffers polled, 5 said they would vote for Biden in 2020. All but one of the others either voted Jorgensen or chose not to vote. Only Robert Poole said he would vote for Trump “I will select GOP/Trump as the lesser evil. This is because of the need to continue with a Supreme Court that upholds the written Constitution, but also because of better environmental, regulatory, and transportation policies and staffing of the relevant agencies.”

        The 5 self-claimed Biden voters:

        C.J. CIARAMELLA
        Criminal Justice Reporter: “Joe Biden. The nationalists said the libertarian-conservative consensus is dead, and I take them at their word. Also, Stephen Miller is a white nationalist.”

        SHIKHA DALMIA
        Senior Analyst: “I will cast my ballot for Joe Biden in Michigan, a swing state, because there is no bigger libertarian cause right now than to prevent Donald J. Trump from getting re-elected.”

        MIKE RIGGS
        Deputy Managing Editor: “While I would like to see a President Jo Jorgensen, I will settle for not having to live another four years under President Donald Trump. I will cast my first ever vote for president for Joe Biden in the battleground state of Pennsylvania.”

        STEPHANIE SLADE
        Managing Editor: “I am a true undecided: I’ve been vacillating between sitting out this election, as I did in 2016, or voting for Joe Biden. The strongest argument for the latter choice is that it’s an opportunity to support the repudiation of both Trumpism and the Alexandria Ocasio-Cortez wing of the Democratic Party.”

        ZACH WEISSMUELLER
        Senior Producer: “It makes me a little queasy, but I’ll be voting for Joe Biden….”

        1. I’m pretty sure Sullum, Shackford,and Boehm all voted for Biden. Despite any claims to the contrary. Just like most of our prog trolls here voted Biden.

    2. You should get back to parody and out of the straight news business IMO

      1. You said yesterday it was wrong for the news to highlight illegal acts from the NSA. And yet you claim others as parody.

  4. Promises made, promises kept.
    Didn’t anyone else read the democratic party platform?

    1. Among the commentators or Reason staff?

    2. Yes, it sounds like the Mafia’s. Everyone pays. Everyone pays more.
      How else will the Nation be able to afford meaningful reparations?

    3. NO MEAN TWEETS. That’s all that mattered in the platform. That is it. That’s all they cared about.

  5. For all of you who voted for current POTUS Biggus Dickus, you deserve what you get, good and hard.

    [I have a pair of RayBans from the 70s that I used to treasure; now I can stand the sight of the fucking things any more].

    1. Yes, but mean tweets and something something practically racism.

      1. And guilty of returning library books late!

    2. Have you tried eating an ice cream cone while wearing them to see if it helps?

    3. Unfortunately, the rest of us, who voted correctly, do not deserve any of this. So we need reparations. The wealth of prominent democrats and their cronies should be redistributed to loyal Americans. As progs favor wealth redistribution, this should not be an issue for them.

  6. Biden got 75% of Wall Street’s donations and at least an order of magnitude more dark money than Trump. Only an idiot or a Reason writer would be surprised. I separate the two because Reason writers are also liars.

    1. Damn straight! There are only two kinds of people in the world: Trump supporters and liars!

      1. Imposing your assumptions, he clearly laid out at least three; Trump supporters, idiots, and liars.

        1. I’d say there’s some serious overlap in the first two.

          1. I’d say you’re a TDSs-addled lefty asshole.

          2. Says the guy who was happy biden won. Lol.

      2. There are lying dipshits, like yourself, too dumb to realize we easily see thru your dumb lies

        1. Its amazing that even given the last 7 months he is still only attacking trump and the right. He doesn’t live in reality. He actually realized how full of shit he was the last few years but is so pathetic he can’t admit he was wrong, so he persists.

          He claimed be would be neutral and attack the ruling party but he can’t do it. He is broken.

      3. You called everyone who disagrees with you a trump cultist for 2 years. What you are doing is a) hyperbole and b) projection.

  7. Excludes large investors…..I thought that Biden was going to stick it to these greedy fat cats?

    If this plan passes and this exemption “becomes” a political headache, they’ll pass the stock transaction tax or wealth tax or some other thing to make sure they get their pound of flesh from everyone. And now they’ve gotten two tax increases and only had to fight one battle.

    1. Art investors are exempt and have immediate realized gains.

  8. So the AFP is exempting perhaps billions of dollars of capital gains income from exactly the income group who Biden has stated he wants to tax.

    The stated target was never the real target. It was always the middle class.

    1. They’re the only group with a significant amount of assets in the aggregate but not enough assets individually to impact political contributions significantly. In other words, the perfect marks.

      1. Not enough assets individually to impact political contributions, or to set up trusts to shelter their assets.

      2. That has always been true. No new taxes on the middle class is the Big, Big Lie of Biden and party.

    2. Taxing the middle class is the ONLY way to bring in significant amounts of revenue.
      Unfortunately most people are dupes.

  9. I cannot believe Senile Joe betrayed the libertarians on this issue.

    Sheesh.

  10. As evil as this plan is, it’s a bit ironic that it’s going to impact those coastal democrat strongholds so much harder than red-state ‘flyover country’.

    1. That’s the only reason the proggies at Reason are writing this.

    2. For once, they DO get the government that they deserve!

  11. “While Excluding Certain Wealthy Investors”

    Sasuga, Joe Biden.

  12. This makes sense. Democrats abhor people being “born rich” (unless it’s themselves of course), so this will stop families from passing ill-gotten gains (in a zero-sum economy for one to gain another must lose) onto their spoiled little brats.

  13. Seriously though, I think farmers will be worst hit. Most of their wealth is in the form of land and other assets. These kinds of death taxes will ensure that the family farm is not passed down to the next generation. Instead it will be sold in order to pay the government.

    1. It can go into a land trust controlled by the NEA or possibly Black Lives Matter, for reparations.

      1. Or the Chinese will buy (more) up at bargain prices, eventually putting the final nail in the coffin of family farmers in the US

        1. Those farmers probably voted for Trump, so it’s all good.

    2. Of course,
      they live in fly-over states

    3. Farmers and most any other small family businesses.

      By design.

    4. Should have thought of that while you were solely focused on mean tweets fucktard.

    5. Literally anyone with $99 can set up a family trust for the land.

      1. … and it doesn’t do any good now, and wouldn’t do any good under Biden’s plans. Family trusts only protect the family from probate.

  14. So you mortgage the home out to the max, pull all the money out, buy gold coins, hand them to your children in a bag, and hand the government a big fat mortgage.

    There you go, tax man! Debt: the American value!

    1. They owed taxes on the asset valuation, not asset valuation minus mortgage.

      1. Do you have a source for that statement? My source (law dot cornell dot edu) contradicts it explicitly: A deduction is allowed from a decedent’s gross estate of the full unpaid amount of a mortgage upon, or of any other indebtedness in respect of, any property of the gross estate, including interest which had accrued thereon to the date of death, provided the value of the property, undiminished by the amount of the mortgage or indebtedness, is included in the value of the gross estate.

        1. That’s current law. This just creates a deemed sale on death; debt is irrelevant to capital gains taxes.

  15. But all of his tweets are so Presidential-sounding, put through multiple rounds of focus-group testing until the message is just right.

    1. Biden quotes: uh, whah, huh?

    2. Calling half of Americans racist is as presidential as it gets.

  16. You believed a known corrupt liar. Don’t whine now. Pay up.

    1. Reason doesn’t understand cause and effect.

    2. Which one?

  17. As if Reason cares about middle class housing values. Aren’t we giving full power and control of housing to the federal government? You know, YIMBY, dense housing with subsidized units or section 8 placed strategically in my backyard? Ban single families etc. etc.

    Oh, now I get it. It’s just the nouveau urbanists middle class housing values in progressive shitholes where the Reason staffs parents are.. Ok got it.

    1. Fake libertarians are going to be fake.

      1. True libertarians set aside all their principles and blindly support Trump, eh?

        1. TDS-addled lefty assholes seem to make everything about Trump.

        2. It was never blind you lying addled shit. Everyone here posted when he was wrong, see the bump stock threads or discussions of his personality.

          Not everyone is as pathetic as you.

        3. Go back to glibs you sad, broken, man.

  18. I’m confused. Shouldn’t the libertarian position be, “Fuck you. My life, my money,” instead of arguing some bullshit egalitarian position? Would this theft be more or less immoral if it hit everybody the same?

    1. This is a fake libertarian publication

  19. “Taxpayers who expected to leave a nice nest egg for their children or grandchildren would see a significant portion of it go to the federal government instead.”

    Maybe they should have thought of that when they elected someone who was planning to spend 12 trillion dollars he doesn’t have.

  20. Trusts aren’t that hard to set up. Heck people set them up to buy a cheap fuel filter and $200 tax stamp. No reason one couldn’t just put anything of value in a trust, avoid probate, and potentially this legal leech.

    It would be good to know how this would hit trusts and other things like an IRA or 401K. If it doesn’t pick them apart expect to see financial advisors and lawyers putting a bigger motor on the trust printing press.

    1. They’re not hard to set up, but they’re a long ways from ‘leak-proof’.

  21. Not a tax expert, but isn’t the outstanding mortgage deductible from the value of the estate? https://www.law.cornell.edu/cfr/text/26/20.2053-7

    1. Yes. I implicitly made the same point in my earlier post here but only because I had not yet read your comment and didn’t mean to be redundant. I even used the same source, law cornell. The outstanding mortgage is deductible from the value of the estate.

      1. That’s for estate taxes; this tax would be part of the estate income tax, or a separate estate income tax.

  22. Why even have taxes at this point? Why not just print more money?

    1. Success must be punished.

      1. TDS-addled lefty assholes should be.

  23. They are coming after my retirement funds. I have been a fool for saving what little I can while working for the last 40 years. I should be glad to own nothing and be happy with it. Will they take my home? Will they take my 401K? Will I let them? They are already inflating the value away, in effect reducing my savings. My only defense against this inflation is to hope for the value of my investments to maintain relative value. Why should I let them ( the US government) take this from me?

    1. It’s racist not to let them.

    2. They don’t even have to take them, they’ll just inflate the value away.

  24. “Be thankful for high taxes and that we allow you to have the luxury or property.” – Proggie logic

    1. According to our betters, it is all the government’s money anyway. Be thankful for what fraction that passes through your hands that they allow you to keep. They could take it all!

  25. Inheritances are racist -> they are the premier example of white supremacy and white advantage. Therefore, the inheriting of any assets of greater value than a 3-year old used car must hereafter be prevented. It is only equitable! (Going to a cashless society will facilitate this utopian equalization.)

    Don’t expect to be able to leave a family business to your children – they didn’t build that, even if you think you did.

    Don’t expect to be able to leave the family farm to a child – that gives him an un-equitable advantage. Tax the transfer at a satisfactory level and it will appear on the market where Bill Gates can buy it.

    And sadly, I suspect that in short order, those notions will be lauded by a majority of our lo-fo, no-skin-in-the-game universal suffrage electorate.

  26. I’m thinking about that example of the woman with the apartment. According to the CPI Inflation Counter of the Department of Labor Statistics, $200,000 in Jan. 1981 dollars is the equivalent of $601,337.93 in Jan. 2021 dollars. So inflation, a result of government diddling with our currency, is responsible for about 22% of the increase in the apartment’s value. That should be taken into account when calculating the woman’s capital gain.
    IMHO capital gains should be calculated in constant dollars from the year when an asset is acquired.

    1. Yeah man, that lady’s husband died 40 years ago? Did she kill him? May/December romance? So many questions.

    2. If the government followed you plan, where would the money come for “infrastructure”? You think the government can just print money?

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    1. That the planned for nest egg is swallowed up by the government is, as Microsoft says, a feature not a bug.

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    1. Happy for you. Please pay your taxes, the government needs the money. Don’t leave any for your children, they’ll never get it.

  29. Republicans spend money we don’t have.

    Democrats spend money we don’t have and then tax you so they can spend even more money we don’t have.

    1. We have bad choices. I get infuriated when R’s get tough on spending in rhetoric and then every time they are in blow up the budget.

      But as bad as that is, it has to be noted that the second the D’s get back in power its a “hold my beer” moment with spending. My choices are a party that will lie about cutting spending, and then spend big, or a party that will be honest that they will spend more, then say that spending isnt enough, then raise my taxes to pay for their massive spending spree. With no chances of lowering my taxes.

      Add in the woke bullshit and CRT, the D’s will not see a vote from me.

  30. So Biden and his minions are lying dicks. This is new?

  31. Yeah man, that lady’s husband died 40 years ago? Did she kill him? May/December romance? So many questions.
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  32. Show of hands, who is surprised?

  33. Ok, so add QSBS to the reform. Done.

  34. The Dems have been quite open that they don’t want people to have too much in the way of assets for a long time. To reduce wealth they are going to have to tax heavily. Admittedly, that’ll make a lot of middle class people poorer, but possibly the gap between them and Bill Gates or Jeff Bezos will narrow a bit resulting in less inequality and thus a happier society.

    1. Either you’re the biggest f***ing moron out there, or the greatest baiter ever.

      1. Definitely a master baiter…

  35. Why is Biden, (and pretty much every administration before him) still utilizing things forsworn as far back as the Magna Carta?

  36. Biden’s New Death Tax Hits the Middle Class While Excluding Certain Wealthy Investors

    Apparently, it’s working as Biden, the Democrats, and Reason intend it to work. So, spare us the fake outrage, Reason.

  37. Looters gonna loot. I predict more business for estate planning lawyers from people who didn’t need them before.

    -jcr

  38. They outright told you during the campaign they were going to do this yet you still voted for the Vegetable-In-Chief so now I say STFU!

  39. Somebody, please remind this stupid **** that this country was founded on the fact that we HATE taxes and will take up arms against **holes who unjustly impose them…

  40. she refinanced her apartment to pay for her children’s college educations, for weddings, and for a couple of vacations. Today, her $200,000 apartment has a fair market value of $2,000,000. She has a mortgage of $1,500,000.

    $1.5 million for her kids’ college, weddings and a couple of vacations? It sounds like Jane needs someone to take her checkbook away from her.

  41. Sadly, you destroyed your credibility in the third paragraph.

    This average Jane you created, would have never been able to qualify for $1.5M in mortgages on that apartment on her average Jane income.

    You really need to rethink this if you want to have your argument taken seriously.

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