Booker, Van Hollen and colleagues announce new laws to close the increased tax gap
The proposal will fill one of the biggest loopholes in US tax law that subsidizes America’s richest heirs
WASHINGTON – Today US Senators Cory Booker (D-NJ), Chris Van Hollen (D-MD), Bernie Sanders (I-VT), Sheldon Whitehouse (D-RI) and Elizabeth Warren (D-MA) announced a new one Proposal to bridge the widening income tax gap – reform one of the biggest tax breaks in our federal tax law to support national investments that benefit all Americans and build a more inclusive economy. This new legislative proposal, the Sensible Taxation and Equity Promotion (STEP) Act, addresses the exacerbated loophole by taxing unrealized capital gains when heirs inherit vast fortunes on which the original owner never paid income tax.
“Generations of US tax laws that subsidize the richest households have closed an extraordinary wealth gap, particularly by race.” said Senator Booker. “Closing this huge tax gap for the richest Americans will help reduce the extreme wealth inequality in our country, especially if their savings are used to fuel ideas that further improve the playing field – ideas like my baby bond proposal for a savings account create and fund Any US-born child who, at 18 years of age, can be used to fund capital formation investments such as higher education, buying a home, or starting a small business. “
“To build an economy that works for all Americans, we need to eliminate inequality in our tax system. The reinforced base gap is one of the biggest tax breaks on the books, providing an unfair advantage to the wealthiest heirs each year. This proposal will close that void once and for all. It is time to stop subsidizing massive inheritance for the rich and invest in everyday Americans. ” said Senator Van Hollen.
“It is absurd that our tax laws allow many of the richest people in our country to get away without paying a dime in taxes on millions or even billions of investment income, while workers pay taxes on every check they receive.” said Senator Sanders. “It is not a radical idea to ask the rich among us to pay their fair share and that we put an end to manipulated tax laws that place a disproportionate burden on working people. I am proud to work with Senator Van Hollen as the original co-founder of legislation that would close one of the most egregious tax loopholes in our Code today. “
“As wealth inequality worsens and American democracy worsens, it is time to dig deeper into devices like the ‘reinforced base’ that apply only to genetic material.” said Senator Whitehouse.
“The rich have manipulated our tax system and helped maintain massive inequalities in our economy and society.” said Senator Warren. “It is a step in the right direction for the richest Americans to bridge the gap in the expanded base for huge inherited fortunes: getting the rich and connected to pay their fair share.”
The STEP Act is endorsed by: AFL-CIO, American Federation of Teachers, Americans for Tax Justice, Coalition for Human Needs, Institute for Taxes and Economic Policy, American Federation of State, County and Municipal Employees (AFSCME), Patriotic Millionaires, and NETWORK-Lobby for catholic social justice.
Working Americans pay taxes on their income every year. However, income tax is more optional for the richest families, whose income is often derived from inherited wealth rather than work. Income from capital formation is intended to be taxed as capital gains when someone sells an asset for more than they paid for it. However, if someone dies with assets that have increased in value during their lifetime, income taxes are never levied on those capital gains – even if their heirs sell the asset the next day.
This is known as the “increased base” void because heirs can increase their cost base on inherited property to match the value at the time of the previous owner’s death, meaning that only capital gains above that point could ever be impacted on income taxes. This is one of the largest tax breaks in all of federal tax law. The Joint Tax Committee estimates the value to be $ 41.9 billion in 2021 alone.
Every dollar of tax relief based on a tax-free top-up is a state subsidy on inheritance, and most of that subsidy goes to the wealthiest family dynasties. Thanks to the strengthened base, 55% of property in real estate valued at more than $ 100 million has never been and will never be subject to income tax.
The STEP Act fills the reinforced base gap by taxing unrealized capital gains when heirs inherit vast fortunes on which the original owner never paid income tax. According to this bill, the tiny portion of estates owed to estate tax is not subject to double taxation as the income taxes paid under this bill are deductible for estate tax purposes. The bill also contains specific rules to ensure wealthy families cannot evade the tax by abusing trusts. Finally, the bill ensures that this change only applies to the wealthiest families and protects small family businesses and businesses by exempting some unrealized capital gains of up to $ 1 million from taxation under the bill.
The Senators welcome feedback on this draft discussion, particularly on the technical issues raised in the Sectional Explanation, and look forward to officially adopting this legislation in the months ahead.
A pager on legislation can be found here. You can find the section-by-section explanation here. You can find the draft discussion here.
“America’s ultra-rich are now taking advantage of a huge tax loophole that the STEP Act will close. Unlike most of us who have to pay taxes on our wages when we earn them, the rich don’t pay taxes as their vast real estate holdings increase in value. When they die, those untaxed profits, sometimes worth billions of dollars, will forever escape tax. The STEP Act will fill this gap and raise huge sums of money needed to rebuild roads and bridges, improve schools and combat climate change. ” said Frank Clemente, executive director of Americans for Tax Fairness.
“The Biden government rightly wants to increase taxation on capital gains, the main form of income for the super-rich. To do this successfully, it is critical to fill the huge void: capital gains bequeathed to heirs are completely beyond taxation. This proposal removes that loophole and ensures wealthy heirs pay their fair share. ” said Emmanuel Saez, professor of economics at the University of California at Berkeley.
“This proposal is another big step forward in achieving one of the most inefficient and unfair tax breaks on income generated from extraordinary wealth. This would ensure that income from extraordinary property – large amounts of which are currently forbidden from any income tax – are subject to income tax on capital gains. And the proposal suggests informed solutions to the detailed technical decisions required to properly implement this policy. ” said Chye-Ching Huang, executive director of the Tax Law Center at NYU Law.
“I could be called the figurehead for the reinforced base. The Disney stock I own has increased dramatically in value, but what if I passed them on to my children without selling them? Nobody would ever pay taxes on it. That wealth doesn’t go away, so I don’t know why the responsibility to pay taxes on it should be like that. ” said Abigail Disney, a member of the Patriotic Millionaires.
“Senator Van Hollen’s legislation fills perhaps the largest loophole in all taxation legislation – the provision that allows the ultra-rich to transfer unlimited wealth to their heirs that has literally never been or will be subject to income tax. It’s a big reason why the tax code is so skewed in favor of the very rich. President Biden has repeatedly stressed the importance of bridging this gap in order to end the tax law’s preferential treatment of wealth over work. This is the year Congress must act. “ said Alexandra Thornton, senior director of tax policy, Center for American Progress.
“In his encyclical Fratelli Tutti, Pope Francis calls on all people to live in solidarity: ‘[This] means much more than sporadic generous acts. It means thinking and acting in community. “The Reasonable Taxes and Equity Incentives Act requires that the few richest Americans whose income comes from their wealth and who do not work pay their fair share of community taxes. The NETWORK lobby is proud to support this bill to stimulate investment in our economy, fill the racial wealth gap and move our nation to real solidarity. ” said Sister Simone Campbell, SSS, executive director of the NETWORK Lobby for Catholic Social Justice.
“The Coalition for Human Needs strongly supports the STEP Act (Sensible Taxation and Equity Promotion). It will lead to a more progressive tax system, generating revenue from the richest people in our country to provide resources to fund human needs programs that are vital to those families who need them most. ” said Deborah Weinstein, Coalition Executive Director for Human Needs.
“This is an important calculation. It sensibly addresses the most untenable, blatant omission from the individual income tax base. It will improve equity, profitability and generate significant income from those with proven solvency. ” said Harry L. Gutman, former Joint Tax Committee Chief of Staff.
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