Dying and better taxes: Biden plans an assault on the enterprise

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Raymond Keating

Raymond Keating

Biden’s tax agenda is a sweeping attack on business, investment, and wealth creation. It is therefore also an attack on entrepreneurship and American workers.

President Joe Biden and his administration emphasize the notion that there will be no negative impact on the economy as they directly levy taxes on companies and businesses that make more than $ 400,000 a year. That is of course politics, not economics.

When you levy taxes on higher incomes, the results include changed incentives and choices for those income recipients, as well as reduced dollars in their hands. This means that investment in new and expanding businesses is discouraged and reduced as more resources accumulate in political hands to be redistributed according to policy incentives.

Regardless of how much the left and the White House wish it didn’t, the reality is that the incentives and lack of knowledge in the government guarantee that dollars withdrawn from the private sector are spent by the government lead to serious inefficiencies. All of this comes together to curb economic, income and employment growth.

The same applies of course to higher taxes on companies, with Biden proposing to increase the corporate tax rate from 21 percent to 28 percent and the highest individual income tax rate from 37 percent to 39.6 percent. The obvious results are reduced incentives and resources to grow the business.

A favorite tax of the class struggle is the estate or death tax. After a lifetime of paying taxes and fees, the government shows up at death to retrieve some of a person’s property. In fact, the highest federal death tax rate is 40 percent and applies to properties valued at more than $ 11.7 million.

While Biden called for an increase in inheritance tax on the campaign trail, some believe his most recent tax plan did not include an increase in taxes on death. That is not completly correct. Biden has proposed a dramatic change in the capital gains tax applied at the time of death, which in turn would dramatically increase the overall tax rate at the time of death.

Keep in mind that if Biden died, he would collect both inheritance tax and capital gains tax. What has long been the norm has been avoided to levy both taxes on death. So tax law has generally provided what is known as a reinforced base for assets transferred at the time of death so that they are not affected by capital gains tax and death tax. The increased base means that the capital gains base for an inherited asset is increased to fair value at the time of the death of the original owner.

But the Biden plan would tax unrealized capital gains on death. For good reason, Biden has proposed a dramatic increase in capital gains tax – from 20 percent plus the 3.8 percent tax for a total of 23.8 percent to the highest normal tax rate of 43.4 percent for profits worth more than US $ 1 million -Dollar.

Consider the example of a small business worth $ 52 million when the owner dies after an initial investment of $ 12 million. The capital gain of $ 40 million would be taxed 43.4 percent on a liability of $ 17.36 million. The remaining $ 34.64 million in assets after the $ 11.7 million exemption would be taxed at 40 percent, adding an additional tax charge of $ 9.18 million. This equates to a total tax charge of $ 26.54 million, or a total tax rate of 51 percent.

Add government taxes and inflation to the equation – capital gains are not adjusted for inflation – and the real headline tax rate would go even higher.

Of course, there are many small businesses that might be considered “wealthy” but don’t have the cash flow to pay such a huge tax burden. Last but not least, this massive government tax collection can come at a particularly vulnerable time upon the death of the owner. The death tax can already be a death sentence for small businesses. This Biden proposal would only terminate more companies.

Note Biden’s election promise to increase the estate tax. That creates more tax uncertainty and concerns about what might come next.

The overall tax rate would vary depending on the circumstances, but the government, which acquires about half or more of the property in the event of death, would be a great success for small businesses and investors and an obvious incentive to invest in a business and an incentive to sell a business .

Investing in new and expanding companies and, for example, in the stock exchange – an important instrument with which companies raise capital for innovation and development – are positive for the economy.

The evils of taxing such investments are certainly not limited to those with higher incomes. Indeed, the bad news would be widespread and put a brake on economic, income and employment growth.