United Kingdom

Biden's death tax and the New York widow: How president's raid on the rich will hit modest estates

President Biden has promised not to raise taxes on anyone earning less than $400,000 but plans to end an inheritance loophole could do just that, according to a new analysis that suggests a widow with nothing to pass on to her children but her home could be badly hit by proposals that would leave the Bidens' personal fortune untouched.

Tucked away in Biden's American Families Plan is a revision to the way capital gains taxes are paid on estates when people die.

Critics have dubbed it a 'middle-class death tax' and say it will mean thousands of people having to sell assets to meet tax bills they would not get under existing law.

'The American Families Plan as proposed would impose a new death tax that would punish middle class individuals who chose to invest in America and leave something for their children rather than spend every dollar, said Hank Adler, associate professor at Chapman University and co-author of the new study.

'The plan does not move the goal posts, it totally changes the rules of the game.'

President Biden's American Families Plan includes a radical change to the way capital gains tax is applied to estates. It would reduce the threshold from $11.7 million to $1 million, potentially exposing lower earners to the tax, particularly those hoping to pass on homes to their children

The Bidens own two houses. They bought their main home (of which the gate house is pictured above) in Greenville, Delaware, for about $2.7 million. Analysis shows they would not be worse off under the new tax proposals

At present, capital gains tax is generally imposed on profits when assets are sold.

But for estates worth more than $11.7 million the tax is imposed on what are called 'unrealized gains' - that is the increase in value of homes, shares and other assets even if they are not sold.

That means estates worth less than that can be passed on and the increase in home value is reset, so the beneficiary is taxed only when they sell that asset and only on the increase after they inherited it.

Biden last month called this the 'trust fund loophole.'

'We need to make a choice to eliminate the loophole,' he said.

His proposed change would reduce the threshold to $1 million but the analysis by Adler and California attorney Madison Spach, published by the Wall Street Journal, identifies some awkward consequences.

Suppose a young widow had bought a house in New York for $250,000 decades ago. She never remarried and the home, now worth $2.5 million, was her only asset on her death.

How a widow in New York would leave descendants with huge tax bill for house she bought decades ago, under Biden's plan

Families who made money from New York homes could face hefty tax bill

Suppose a widow buys a house in New York for $250,000 in the 1970s.

She never remarries and by the time of her death her only asset is the home.

She leaves her house, now worth $2.5 million, to her children.

Under current law, the estate faces no capital gains tax.

Her children inherit the house at a value of $2.5 million and would only pay capital gains on its sale.

Under Biden's proposals, the estate would be subject to capital gains tax.

Its increase is $2.25 million, less a $1.25 million exemption, leaving a taxable amount of $1 million.

At 40.8% that would bring a $408,000 tax bill.

How Joe and Jill Biden would escape increased tax bill under changes he is proposing to end loophole 

The Bidens bought their Rehoboth Beach home for $2.7 million in 2017 

Joe and Jill Biden have an estimated net worth of $8 million, according to Forbes.

The president's financial disclosure forms show assets that include two homes, annuities and life insurance policies.

They built their Wilmington, Delaware, home on land bought for $350,000 in 1996. It is now estimated to be worth $2 million.

Their Rehoboth Beach house, also in Delaware, cost $2.7 million in 2017.

That means the total appreciation is likely to be less than the $2.5 million couple's exemption.

And their estate would pay nothing. 

The new rules would mean $1 million of the value of the house would be taxable (from $2.25 million appreciation less $1.25 million in exemptions), reducing her children's inheritance by $408,000.

That was a hypothetical example. Now consider the real life example of a wealthy couple.

'Joe and Jill Biden have an estimated net worth of $8 million, according to Forbes,' write Adler and Spach.

'Mr. Biden's disclosures indicate that their assets consist of two personal residences along with several annuities and life insurance policies.'

Their two homes - just outside Wilmington and in Rehoboth Beach, Delaware - are- the only assets subject to capital gains at death, they continue. And the appreciation is almost certain to be less than the $2.5 million exemption for a married couple.

The authors conclude: 'Scenarios in which the new death tax would significantly reduce, nearly eliminate or even totally eliminate the net worth of decedents who invested and held real estate for decades wouldn't be uncommon.'

The proposal comes amid a double push among Democrats for tax reform. They want to fund ambitious spending proposals and work out how to make the uberwealthy pay a fairer share.

They received a boost last week with a report from ProPublica that revealed how America's richest people were able to legally reduce their income tax bills.

Amazon founder Jeff Bezos's income tax bill was zero in 2007 and 2011, according to the non-profit investigative journalism organization.  

Tesla founder Elon Musk's also paid no income tax 2018 while financier George Soros went three years in a row without paying any federal income tax.

ProPublica also what it described as the 'true tax rate' for the billionaires based on the amount they paid from 2014 to 2018 compared how much Forbes estimated their wealth had grown during that period.

Football news:

Kane wants to move to Man City with Grealish. He will soon discuss leaving with Tottenham
Real Madrid reported that Odriosola has contracted the coronavirus
Gasperini about Ilicic: He wants to find a team where he will achieve something more significant
Mbappe will not play in the match for the French Super Cup. The game will be held in Israel
Benfica introduced Yaremchuk. The forward of the national team of Ukraine moved from Gent
17-year-old Gurna-Duat can move to Atalanta from Saint-Etienne for 10 million euros
Bayern did not win a single friendly match under Nagelsmann - 3 defeats and a draw